We have analyzed the dioxin-inducible transcriptional control mechanism for the mouse CYP1A1 gene in its native chromosomal context. Our genetic and biochemical studies indicate that a C-terminal segment of the aromatic hydrocarbon receptor (AhR) contains latent transactivation capability and communicates the induction signal from enhancer to promoter. Thus, transactivation and enhancer-promoter communication may be congruent functions of AhR. Both functions require heterodimerization between AhR and the AhR nuclear translocator (Arnt). Our findings also indicate that heterodimerization activates AhR's latent transactivation function and silences that of Arnt. Furthermore, removal of Arnt's transactivation domain does not affect dioxin-induced CYP1A1 transcription in vivo. In addition, our studies demonstrate that dioxin-induced changes in chromatin structure occur by different mechanisms at the CYP1A1 enhancer and promoter and that events at an enhancer can be experimentally dissociated from events at the cognate promoter during mechanistic analyses of mammalian transcription in vivo.