Viral infections commonly induce expression of type I interferon (IFN) genes. The induction is transient and involves transcriptional activation wherein a positive factor, IRF-1, binds to upstream regulatory cis elements. In the present study we report the isolation of a cDNA encoding a novel factor, termed IRF-2, that interacts with the same nucleotide sequence elements as IRF-1. Both genes are inducible not only by virus but also by IFN. Unlike IRF-1, IRF-2 does not function as an activator; rather, it suppresses the function of IRF-1 under certain circumstances. Our results suggest that transcription of the IFN and IFN-inducible genes is regulated by two similar trans-acting factors that apparently compete for the same cis-acting recognition sequences, but which have opposite effects.