The genes coding for the response regulators ARR1 and ARR2 have previously been identified by in silico screening of an expression sequence tag database and subsequent cloning from both Arabidopsis cDNA and genomic libraries. Their structures, in which the N-terminal signal receiver domain is followed by the output domain, are characteristic of typical bacterial response regulators of the two-component regulatory systems that control responses to a variety of environmental stimuli. Here we present evidence that these response regulators actually work as transcription factors. ARR1 and ARR2 were localized in the nuclei of plant cells regardless of the presence or absence of their signal receiver domain. Their middle segments, which faintly resemble the mammalian oncogene product Myb, were capable of binding double-stranded DNA in a sequence-specific manner in vitro. Their C-terminal halves functioned as transactivation domains in plant cells when combined with the DNA-binding domain of yeast GAL4. They thus possess all the essential components of a transcriptional activator. Both ARR1 and ARR2 promoted expression of a reporter gene in plant cells through their own target sequence. Truncation of their N-terminal signal receiver domain led to an increase in transactivation. An as yet unidentified phospho-relay signal may modulate the capability for transactivation and/or DNA binding through the signal receiver domain.