Expression of the transcription factor AP-2alpha was examined in cultured human epidermal cells. Levels of AP-2alpha mRNA increased substantially after the cultures reached confluence, similar to the expression pattern of the differentiation markers involucrin and keratinocyte transglutaminase. The level of AP-2alpha protein in nuclear extracts declined markedly after confluence, however, along with its ability to form complexes with oligonucleotides containing the AP-2 response element. In contrast, the levels of AP-2alpha protein in cytoplasmic extracts increased dramatically after confluence, but these extracts had low DNA binding activity. Supershift experiments with specific antisera detected only AP-2alpha and not the beta or gamma isoforms. Examination of its localization by confocal microscopy revealed that AP-2alpha was primarily in the nucleus of basal cells and largely cytoplasmic in the most superficial cells. Localization was a dynamic phenomenon in that changing the medium resulted in accumulation of this transcription factor in the nucleus after several hours. Overall, the data indicate that AP-2alpha transcriptional activity is regulated in a differentiation-dependent manner in cultured keratinocytes and that this occurs by relocalization of the protein. Nuclear localization of the AP-2alpha protein in basal cells permits its accessibility to response elements in gene promoters, whereas sequestration in the cytoplasm as the differentiation program progresses curtails its transcriptional activity. This regulatory scheme may provide keratinocytes with the ability to restore AP-2 transcriptional activity rapidly by redistribution to the nucleus after receiving an appropriate growth signal, such as a medium change.