Human T-cell leukemia virus type 1 (HTLV-1) is an etiological agent of several inflammatory diseases and a T-cell malignancy, adult T-cell leukemia (ATL). HTLV-1 bZIP factor (HBZ) is the only viral gene that is constitutively expressed in HTLV-1-infected cells, and it has multiple functions on T-cell signaling pathways. HBZ has important roles in HTLV-1-mediated pathogenesis, since HBZ transgenic (HBZ-Tg) mice develop systemic inflammation and T-cell lymphomas, which are similar phenotypes to HTLV-1-associated diseases. We showed previously that in HBZ-Tg mice, HBZ causes unstable Foxp3 expression, leading to an increase in regulatory T cells (Tregs) and the consequent induction of IFN-γ-producing cells, which in turn leads to the development of inflammation in the mice. In this study, we show that the severity of inflammation is correlated with the development of lymphomas in HBZ-Tg mice, suggesting that HBZ-mediated inflammation is closely linked to oncogenesis in CD4+ T cells. In addition, we found that IFN-γ-producing cells enhance HBZ-mediated inflammation, since knocking out IFN-γ significantly reduced the incidence of dermatitis as well as lymphoma. Recent studies show the critical roles of the intestinal microbiota in the development of Tregs in vivo. We found that even germ-free HBZ-Tg mice still had an increased number of Tregs and IFN-γ-producing cells, and developed dermatitis, indicating that an intrinsic activity of HBZ evokes aberrant T-cell differentiation and consequently causes inflammation. These results show that immunomodulation by HBZ is implicated in both inflammation and oncogenesis, and suggest a causal connection between HTLV-1-associated inflammation and ATL.