We report the purification and characterization of a unique DNA-binding protein termed TH3 that interacts with the positive regulatory domain (PRD) I and PRDIII domains of the interferon (IFN) beta promoter. In cells treated with poly rl:rC and cycloheximide, appearance of TH3 DNA-binding activity was inversely proportional to the disappearance of a constitutive complex TH1 and coincided temporally with induction of IFN-beta gene transcription. The TH3 DNA-binding protein is a small 14-kDa polypeptide that appears to be derived from the TH1 complex; TH1 in turn is related to interferon regulatory factor (IRF) 2 by immunological cross-reactivity. The TH3 protein appeared to lack the epitope required for recognition by anti-IRF-2 antisera; however, a short microsequence obtained for TH3 overlapped a sequence from the IRF-2 protein. Although TH3 binds to multimers of the AAGTGA hexamer and to PRDI, the TH3 protein alone had a predominantly neutral phenotype on PRDI-dependent transcription in vitro and lacked the negative transcriptional effect attributed to IRF-2. These results raise the possibility that specific proteolysis of a negative regulatory protein involved in silencing the IFN-beta promoter may be an important event leading to transcriptional activation of the interferon gene.