The estrogen receptor (ER) is a transcription factor involved in steroid hormone signal transduction in higher eukaryotes. The receptor also functions as a ligand-dependent transcriptional activator when introduced into Saccharomyces cerevisiae (baker's yeast), which suggests that at least some of the components of the signal transduction pathway are conserved between yeast and mammalian cells, and, moreover, allows the possibility of using this simple eukaryotic organism to dissect receptor function. However, whether the ER actually activates transcription in a mechanistically similar fashion in yeast and mammalian cells is unclear, since it has been reported that the transactivation function within the hormone binding domain (TAF-2) does not function in yeast. In this report, we have characterized the activity of the transactivation functions of the ER in yeast. Our results indicate that both TAF-2 and the N-terminal transactivation region (TAF-1) are functional in yeast and contribute synergistically to the receptor's total activity. These results are consistent with those obtained in mammalian cells. Furthermore, we show that in yeast the antagonistic effects of the antiestrogen nafoxidine arise from a modulation of the synergistic interactions of TAF-1 and TAF-2, and not simply from an inactivation of TAF-2 by antihormone. Finally, we characterize the effect of ER deletion mutants on chromatin structure in yeast. Our data lend support to the view that the formation of competent transcriptional initiation complexes requires a precise disruption of chromatin structure.