Kaposi's sarcoma (KS) is the most common cancer in HIV-infected untreated individuals. Kaposi's sarcoma-associated herpesvirus (KSHV; also known as human herpesvirus 8 (HHV8)) is the infectious cause of this neoplasm. In this Review we describe the epidemiology of KS and KSHV, and the insights into the remarkable mechanisms through which KSHV can induce KS that have been gained in the past 16 years. KSHV latent transcripts, such as latency-associated nuclear antigen (LANA), viral cyclin, viral FLIP and viral-encoded microRNAs, drive cell proliferation and prevent apoptosis, whereas KSHV lytic proteins, such as viral G protein-coupled receptor, K1 and virally encoded cytokines (viral interleukin-6 and viral chemokines) further contribute to the unique angioproliferative and inflammatory KS lesions through a mechanism called paracrine neoplasia.