BACKGROUND Functional inactivation of the tsg101 gene in mouse fibroblasts leads to cell transformation and the ability to form metastatic tumors in nude mice. Abnormal TSG101 transcripts with highly‐specific deletions in the protein‐coding region have been identified in human tumor samples and cancer cell lines, including prostate and breast carcinomas, and have been attributed to alternative splicing of TSG101 mRNA. The function of the TSG101 protein is not known, although its predicted sequence has suggested that it may function as a transcription factor. METHODS Human TSG101 N‐terminal (encoding amino acids 10–240) and C‐terminal (encoding amino acids 230–391) fragments were cloned and used in both transient transfection and protein binding experiments. The transient transfections were carried in CV‐1 cells. Protein‐protein interactions were determined by both glutathione‐S‐transferase fusion protein binding and co‐immunoprecipitation. RESULTS The N‐terminal region of TSG101, when fused to the GAL4 DNA binding domain, can activate transcription; whereas the C‐terminal region mediates transcriptional repression. Full‐length TSG101 or its separated regions repressed ligand‐dependent transcriptional activation by nuclear receptors, including androgen receptor and estrogen receptor, which play central roles in prostate carcinoma and breast carcinoma, respectively. In addition, a direct association between TSG101 and the transcriptional co‐factor p300 was demonstrated in vitro and in vivo. CONCLUSIONS These results indicate that TSG101 can function as a transcription modulator to affect nuclear receptor‐mediated transcriptional activation, which raises the possibility that the tumor suppression by TSG101 observed previously may be mediated at least in part by its effects on nuclear receptor function. Cancer 1999;86:689–96. © 1999 American Cancer Society.