The 39,000 Mr Ada protein of Escherichia coli that carries two distinct methyltransferase activities and activity to promote transcription of the ada and the alkA genes is cleaved by a cellular proteinase. As a result, the 20,000 and the 19,000 Mr proteins are formed, which are derived from the N-terminal and the C-terminal halves of the protein, respectively. To elucidate the molecular mechanism of transcriptional control by Ada protein, the N-terminal 20,000 Mr protein was overproduced by manipulating the cloned ada gene. The protein possessed an activity to transfer a methyl group from the methylphosphotriester of the alkylated DNA to its own molecule and retained the potential to promote transcription of the alkA gene. The methylated form of the 20,000 Mr proteins binds to the proper alkA regulatory sequence, as does the intact Ada protein, and facilitates further binding of RNA polymerase to the promoter, thus forming an active transcription initiation complex. The non-methylated 20,000 Mr protein was incapable of binding itself or supporting RNA polymerase binding to the alkA promoter. When the 20,000 Mr protein was produced under the control of the lac promoter in E. coli and then exposed to a methylating agent, a considerable amount of 3-methyladenine-DNA glycosylase II, the product of the alkA gene, was formed. Thus, the results obtained in in vitro experiments were confirmed by the events observed in vivo. The methylated 20,000 Mr protein also binds to the ada promoter; however, it does not facilitate further binding of RNA polymerase to the promoter nor does it promote ada transcription in vitro. These findings indicate that the N-terminal half of Ada protein is mainly responsible for recognition of and binding to alkA and the ada regulatory sequence. The methylated 20,000 Mr protein occupies the same region of the ada promoter to which the intact Ada protein would bind, thereby suggesting that it acts as a repressor for expression of the ada gene. The ada transcription promoted by the Ada protein was greatly inhibited by the methylated, but not the non-methylated, form of the 20,000 Mr protein. In an in vivo system, formation of the 20,000 Mr protein leads to inhibition of transcription from the ada promoter. We suggest that termination of the adaptive response may come about by proteolytic cleavage of the Ada protein, the result being a loss of the activator as well as formation of the repressor for ada transcription.