Kaposi sarcoma (KS), the most common cancer in HIV-positive individuals, is caused by endothelial transformation mediated by the KS herpes virus (KSHV)-encoded G-protein coupled receptor (vGPCR). Infection of blood vascular endothelial cells (BECs) by KSHV reactivates an otherwise silenced embryonic program of lymphatic differentiation. Thus, KS tumors express numerous lymphatic endothelial cell (LEC)-signature genes. A key unanswered question is how lymphatic reprogramming by the virus promotes tumorigenesis leading to KS formation. In this study, we present evidence that this process creates an environment needed to license the oncogenic activity of vGPCR. We found that the G-protein regulator RGS4 is an inhibitor of vGPCR that is expressed in BECs, but not in LECs. RGS4 was downregulated by the master regulator of LEC differentiation PROX1, which is upregulated by KSHV and directs KSHV-induced lymphatic reprogramming. Moreover, we found that KSHV upregulates the nuclear receptor LRH1, which physically interacts with PROX1 and synergizes with it to mediate repression of RGS4 expression. Mechanistic investigations revealed that RGS4 reduced vGPCR-enhanced cell proliferation, migration, VEGF expression and Akt activation and to suppress tumor formation induced by vGPCR. Our findings resolve long-standing questions about the pathological impact of KSHV-induced reprogramming of host cell identity, and they offer biological and mechanistic insights supporting the hypothesis that a lymphatic microenvironment is more favorable for KS tumorigenesis.