Second messengers like cAMP can activate the transcription of genes containing consesus cAMP response element (CRE). A 43 kd nuclear phosphoprotein previously identified as the cAMP response element binding (CREB) protein has been shown to bind as a dimer to CRE and activate gene transcription. The rat and human CREB protein contain the 'leucine zipper' motif. We have analyzed the role of both leucine zipper domain and the amino-terminal basic region by making site-specific mutations. Our results show that the first three leucines int he leucine zipper domain are essential for efficient dimer formation. Mutations of two consecutive leucines in the leucine zipper domain completely abolish the ability to form dimers. Mutant CREB protein unable to form homodimers is also unable to bind to DNA. In contrast, however, mutations, in the DNA binding region had no effect on dimer formation but were unable to bind to CRE sites or activate transcription. We propose that CREB protein functions by forming homodimers which bind to CRE and activate transcription. Furthermore, the CREB protein needs to be phosphorylated before activating transcription. Finally, we show that the CREB basic region mutant acts as a trans-dominant transcriptional suppressor of wild-type CREB function.