The human neurotropic virus, JC virus (JCV), is the etiologic agent of the fatal demyelinating disease of the central nervous system, progressive multifocal leukoencephalopathy (PML) that is seen primarily in immunodeficient individuals. Productive infection of JCV occurs only in glial cells and this restriction is to a great extent due to the activation of the viral promoter that has cell type-specific characteristics. The cell types that support the JCV infection cycle in culture are limited to primary human fetal glial cells and several transformed cell lines of glial origin. We developed a new hybrid cell system permissive for JC virus infection in order to gain insight into the mechanisms responsible for cell type specificity of JCV. The new cell system was created through the use of polyethylene glycol (PEG)-mediated cell fusion of primary human fetal astrocytes (PHFA) with an HPRT-deficient glioblastoma cell line, U-87MG. The new hybrid system was then used to analyze the ability of JCV replication and gene expression by infection studies. Results demonstrated that the new hybrid lines efficiently support JCV propagation during the early passages but lost that property in later passages. Earlier studies led to the assumption that glial-specific activation of the JCV promoter is mediated through the involvement of positive and negative transcription factors that control reactivation of the JCV genome under normal physiological conditions and suppress its activation in non-glial cells. Here we demonstrate that the alternative splicing factor, SF2/ASF, has the capacity to exert a negative effect on transcription of the JCV promoter in glial cells through direct association with a specific DNA sequence within the viral enhancer/promoter region. Our results show that down-regulation of SF2/ASF in fetal and adult glial cells increases the level of JCV gene expression and replication indicating that negative regulation of the JCV promoter by SF2/ASF may control reactivation of JCV replication in brain. JCV induces a broad range of neural-origin tumors in experimental animals has been repeatedly detected in several human cancer most notably neural-crest origin tumors, including medulloblastomas and glioblastomas. The oncogenic activity of JCV is attributed to the viral early gene products, large T and small t antigen, as evidenced by the results from in vitro cell culture and in vivo transgenic animal studies. We demonstrate that SF2/ASF suppresses the expression of large T antigen and small t antigen in JCV-transformed tumor cell lines. Expression of SF2/ASF in such tumor cells ultimately hinders the transforming capacity of the viral tumor antigens. Moreover, downregulation of SF2/ASF in viral-transformed tumor cell lines induces the growth and proliferation rate of the tumor cells. Altogether, we have created a new hybrid cell system which may serve as a good model system to study the biology of JCV aimed at identifying cellular determinants of the virus replication and gene expression as well as developing novel therapeutic intervention strategies against JCV-induced disease, PML. We have also demonstrated a novel role of the cellular alternative splicing factor, SF2/ASF, in the regulation of JCV gene expression and transformation. These observations provide a new avenue of research to understand pathogenesis of JCV-induced diseases through interplay between JCV regulatory proteins and host factors, such as SF2/ASF.