Kaposi's sarcoma-associated herpesvirus (KSHV) infections of endothelial and B cells are etiologically linked with Kaposi's sarcoma (KS) and primary effusion B-cell lymphoma (PEL), respectively. KS endothelial and PEL B cells carry multiple copies of the nuclear episomal latent KSHV genome and secrete a variety of inflammatory cytokines, including interleukin-1β (IL-1β) and IL-18. The maturation of IL-1β and IL-18 depends upon active caspase-1, which is regulated by a multiprotein inflammasome complex induced by sensing of danger signals. During primary KSHV infection of endothelial cells, acting as a nuclear pattern recognition receptor, gamma interferon-inducible protein 16 (IFI16) colocalized with the KSHV genome in the nuclei and interacted with ASC and procaspase-1 to form a functional inflammasome (Kerur N et al., Cell Host Microbe 9:363-375, 2011). Here, we demonstrate that endothelial telomerase-immortalized human umbilical cells (TIVE) supporting KSHV stable latency (TIVE-LTC cells) and PEL (cavity-based B-cell lymphoma 1 [BCBL-1]) cells show evidence of inflammasome activation, such as the activation of caspase-1 and cleavage of pro-IL-1β and pro-IL-18. Interaction of ASC with IFI16 but not with AIM2 or NOD-like receptor P3 (NLRP3) was detected. The KSHV latency-associated viral FLIP (vFLIP) gene induced the expression of IL-1β, IL-18, and caspase-1 mRNAs in an NF-κB-dependent manner. IFI16 and cleaved IL-1β were detected in the exosomes released from BCBL-1 cells. Exosomal release could be a KSHV-mediated strategy to subvert IL-1β functions. In fluorescent in situ hybridization analyses, IFI16 colocalized with multiple copies of the KSHV genome in BCBL-1 cells. IFI16 colocalization with ASC was also detected in lung PEL sections from patients. Taken together, these findings demonstrated the constant sensing of the latent KSHV genome by IFI16-mediated innate defense and unraveled a potential mechanism of inflammation induction associated with KS and PEL lesions.