Transcription of the low density lipoprotein receptor gene and other sterol-regulated genes is stimulated by sterol regulatory element-binding protein-1 (SREBP-1), a basic-helix-loop-helix-leucine zipper (bHLH-ZIP) transcription factor. Human SREBP-1 is synthesized as an 1147-amino acid precursor that is attached intrinsically to membranes of the nuclear envelope and endoplasmic reticulum. In sterol-depleted cells the precursor is cleaved to generate an NH2-terminal fragment that enters the nucleus and activates transcription by binding to sterol regulatory element-1 (SRE-1). Sterols prevent transcriptional activation by blocking the proteolytic cleavage. In the current studies, performed with hamster SREBP-1, we used mutational analysis to localize the transcriptional activation domain to an acidic NH2-terminal sequence. Deletion of this sequence converted SREBP-1 from an activator to an inhibitor of transcription. DNA binding was assigned to the basic region of the bHLH-ZIP domain. Binding was abolished by substitution of 3 amino acids that were previously implicated in DNA binding by Max, another bHLH-ZIP protein. The membrane attachment domain was localized to two hydrophobic regions at residues 477-497 and 536-556. Truncation of SREBP-1 prior to these regions gave rise to an NH2-terminal fragment that was soluble and entered the nucleus. This fragment was more than 30-fold more active than full-length SREBP-1 in stimulating transcription of an SRE-1 containing reporter gene in transfected cells. Deletion of the hydrophobic sequences (delta 476-556) yielded a protein that appeared cytosolic by immunofluorescence microscopy but failed to enter the nucleus readily, apparently because of inhibition by sequences in the remaining COOH-terminal domain. This study provides a picture of the domain structure of SREBP-1 and further elucidates the mechanism by which it adjusts gene transcription to maintain cholesterol homeostasis in animal cells.