The breast and ovarian cancer susceptibility gene product BRCA1 is a tumor suppressor, but its precise biochemical function remains unknown. The BRCA1 COOH terminus acts as a transcription activation domain, and germ-line cancer- predisposing mutations in this region abolish transcription activation, whereas benign polymorphisms do not. These results raise the possibility that loss of transcription activation by BRCA1 is crucial for oncogenesis. Therefore, identification of residues involved in transcription activation by BRCA1 will help understand why particular germ-line missense mutations are deleterious and may provide more reliable presymptomatic risk assessment. The BRCA1 COOH terminus (amino acids 1560-1863) consists of two BRCTs preceded by a region likely to be nonglobular. We combined site-directed and random mutagenesis, followed by a functional transcription assay in yeast: (a) error-prone PCR-induced random mutagenesis generated eight unique missense mutations causing loss of function, six of which targeted hydrophobic residues conserved in canine, mouse, rat, and human BRCA1; (b) random insertion of a variable pentapeptide cassette generated 21 insertion mutants. All pentapeptide insertions NH2-terminal to the BRCTs retained wild-type activity, whereas insertions in the BRCTs were, with few exceptions, deleterious; and (c) site-directed mutagenesis was used to characterize five known germ-line mutations and to perform deletion analysis of the COOH terminus. Deletion analysis revealed that the integrity of the most COOH-terminal hydrophobic cluster (I1855, L1854, and Y1853) is necessary for activity. We conclude that the integrity of the BRCT domains is crucial for transcription activation and that hydrophobic residues may be important for BRCT function. Therefore, the yeast-based assay for transcription activation can be used successfully to provide tools for structure-function analysis of BRCA1 and may form the basis of a BRCA1 functional assay.