The two known DP proteins, TFDP1 and -2, bind E2Fs to form heterodimers essential for high affinity DNA binding and efficient transcriptional activation/repression. Here we report the identification of a new member of the DP family, human TFDP3. Despite the high degree of sequence similarity, TFDP3 is apparently distinct from TFDP1 in function. Although TFDP3 retained the capacity to bind to E2F proteins, the resulting heterodimers failed to interact with the E2F consensus sequence. In contrast to the stimulatory effect of TFDP1, TFDP3 inhibited E2F-mediated transcriptional activation. Consistent with this observation, we found that ectopic expression of TFDP3 impaired cell cycle progression from G(1) to S phase instead of facilitating such a transition as TFDP1 does. Sequence substitution analysis indicated that the DNA binding domain of TFDP3 was primarily responsible for the lack of DNA binding ability of E2F-TFDP3 heterodimers and the inhibition of E2F-mediated transcriptional activation. Fine mapping further revealed four amino acids in this region, which were critical for the functional conversion from activation by TFDP1 to suppression by TFDP3. In conclusion, these studies identify a new DP protein and a novel mechanism whereby E2F function is regulated.