The human T-cell leukemia virus type I (HTLV-I) regulatory protein Tax activates transcription of the proviral long terminal repeats and a number of cellular promoters. We have developed an in vitro system to characterize the mechanism by which Tax interacts with the host cell transcription machinery. Tax was purified from cells infected with a baculovirus expression vector. Addition of these Tax preparations to nuclear extracts from uninfected human T lymphocytes activated transcription of the HTLV-I long terminal repeat approximately 10-fold. Transcription-stimulatory activity copurified with the immunoreactive 40-kDa Tax polypeptide on gel filtration chromatography, and, as expected, the effect of recombinant Tax was diminished in HTLV-I-infected T-lymphocyte extracts containing endogenous Tax. Tax-mediated transactivation in vivo has been previously shown to require 21-bp-repeat Tax-responsive elements (TxREs) in the promoter DNA. Stimulation of transcription in vitro was also strongly dependent on these sequences. To investigate the mechanism of Tax transactivation, cellular proteins that bind the 21-bp-repeat TxREs were prepared by DNA affinity chromatography. Recombinant Tax markedly increased the formation of a specific host protein-DNA complex detected in an electrophoretic mobility shift assay. These data suggest that Tax activates transcription through a direct interaction with cellular proteins that bind to the 21-bp-repeat TxREs.