S-II is a transcription stimulation factor that enhances RNA synthesis by RNA polymerase II in vitro. To elucidate the function of S-II in transcriptional activation in mammalian cells, we generated an S-II-deficient murine embryonic stem (ES) cell line, DKO20, through targeted gene disruption. The DKO20 cells were viable, grew normally, and had a stable karyotype. The ability to evoke transcriptional activation of hsp70 and c-fos genes was not significantly altered in DKO20. In contrast, transcriptional activation mediated by FESTA/EAF2, a transcription factor that interacts with S-II, was decreased in DKO20 cells. The reduced transactivation potential of FESTA/EAF2 was rescued by introducing the wild-type S-II gene in DKO20. The amino-terminal region of S-II, a binding surface for FESTA/EAF2, was essential for the recovery. These results suggest that S-II is selectively required for positive transcriptional regulation of a subset of genes in murine ES cells.