The rat Kid-1 gene codes for a 66-kDa protein with KRAB domains at the NH2 terminus and two Cys2His2-zinc finger clusters of four and nine zinc fingers at the COOH terminus. It was the first KRAB-zinc finger protein for which a transcriptional repressor activity was demonstrated. Subsequently, the KRAB-A domain was identified as a widespread transcriptional repressor motif. We now present a biochemical and functional analysis of the Kid-1 protein in transfected cells. The full-length Kid-1 protein is targeted to the nucleolus and adheres tightly to as yet undefined nucleolar structures, leading eventually to the disintegration of the nucleolus. The tight adherence and nucleolar distribution can be attributed to the larger zinc finger cluster, whereas the KRAB-A domain is responsible for the nucleolar fragmentation. Upon disintegration of the nucleolus, the nucleolar transcription factor upstream binding factor disappears from the nucleolar fragments. In the absence of Kid-1, the KRIP-1 protein, which represents the natural interacting partner of zinc finger proteins with a KRAB-A domain, is homogeneously distributed in the nucleus, whereas coexpression of Kid-1 leads to a shift of KRIP-1 into the nucleolus. Nucleolar run-ons demonstrate that rDNA transcription is shut off in the nucleolar fragments. Our data demonstrate the functional diversity of the KRAB and zinc finger domains of Kid-1 and provide new functional insights into the regulation of the nucleolar structure.