Differentiation of pluripotent cells into differentiated cell types involves changes in many aspects of cellular biochemistry. Many of these changes result in alterations of gene expression, which may occur by changing the activity of transcription factors. The cell line NTERA-2 (NT2) can be differentiated into various cell types by incubation with retinoic acid. The differentiated cell type is also permissive for infection with the human herpesvirus cytomegalovirus (CMV). The transcription factor YY1 has been shown to regulate the immediate-early promoter of CMV in a differentiation specific manner by binding to one site at -958 to -950 and to at least two sites in the enhancer. It is demonstrated here that there is a second YY1 site in the modulator between -995 and -987. Levels of YY1 DNA binding activity and protein decrease in NT2 cells as they are differentiated with retinoic acid. This decrease in protein is due to the degradation of YY1 by a cathepsin B-like activity found in nuclear extracts. The cleavage products of YY1 include the intact C-terminal half of the protein, which contains the zinc fingers and the DNA binding activity. This suggests a mechanism that allows expression of the CMV immediate-early promoter in differentiated cells.