Viral cancers show oncogene addiction to viral oncoproteins, which are required for survival and proliferation of the dedifferentiated cancer cell. Human Merkel cell carcinomas (MCCs) that harbor a clonally integrated Merkel cell polyomavirus (MCV) genome have low mutation burden and require viral T antigen expression for tumor growth. Here, we showed that MCV⁺ MCC cells cocultured with keratinocytes undergo neuron-like differentiation with neurite outgrowth, secretory vesicle accumulation, and the generation of sodium-dependent action potentials, hallmarks of a neuronal cell lineage. Cocultured keratinocytes are essential for induction of the neuronal phenotype. Keratinocyte-conditioned medium was insufficient to induce this phenotype. Single-cell RNA sequencing revealed that T antigen knockdown inhibited cell cycle gene expression and reduced expression of key Merkel cell lineage/MCC marker genes, including HES6, SOX2, ATOH1, and KRT20. Of these, T antigen knockdown directly inhibited Sox2 and Atoh1 expression. MCV large T up-regulated Sox2 through its retinoblastoma protein-inhibition domain, which in turn activated Atoh1 expression. The knockdown of Sox2 in MCV⁺ MCCs mimicked T antigen knockdown by inducing MCC cell growth arrest and neuron-like differentiation. These results show Sox2-dependent conversion of an undifferentiated, aggressive cancer cell to a differentiated neuron-like phenotype and suggest that the ontology of MCC arises from a neuronal cell precursor.