The breast cancer susceptibility gene BRCA1 encodes a protein that has been implicated in multiple nuclear functions, including transcription and DNA repair. The multifunctional nature of BRCA1 has raised the possibility that the polypeptide may regulate various nuclear processes via a common underlying mechanism such as chromatin remodeling. However, to date, no direct evidence exists in mammalian cells for BRCA1-mediated changes in either local or large-scale chromatin structure. Here we show that targeting BRCA1 to an amplified, lac operator-containing chromosome region in the mammalian genome results in large-scale chromatin decondensation. This unfolding activity is independently conferred by three subdomains within the transactivation domain of BRCA1, namely activation domain 1, and the two BRCA1 COOH terminus (BRCT) repeats. In addition, we demonstrate a similar chromatin unfolding activity associated with the transactivation domains of E2F1 and tumor suppressor p53. However, unlike E2F1 and p53, BRCT-mediated chromatin unfolding is not accompanied by histone hyperacetylation. Cancer-predisposing mutations of BRCA1 display an allele-specific effect on chromatin unfolding: 5' mutations that result in gross truncation of the protein abolish the chromatin unfolding activity, whereas those in the 3' region of the gene markedly enhance this activity. A novel cofactor of BRCA1 (COBRA1) is recruited to the chromosome site by the first BRCT repeat of BRCA1, and is itself sufficient to induce chromatin unfolding. BRCA1 mutations that enhance chromatin unfolding also increase its affinity for, and recruitment of, COBRA1. These results indicate that reorganization of higher levels of chromatin structure is an important regulated step in BRCA1-mediated nuclear functions.