Development of competence in the noncompetent mutant of Bacillus stearothermophilus 4S requires a soluble competence-inducing factor (CF). This study describes several observations that define the mechanism of action of this factor. (i) CF interacts with cells, protoplasts, or cytoplasmic membranes in a temperature-dependent reaction; incubation of CF with cells alters the sedimentation properties of the cells. (ii) Association between CF and the cytoplasmic membrane appears to be the first and rate-limiting step in the process of transfection with deoxyribonucleic acid (DNA) from bacteriophage TP-IC. (iii) The membrane-CF complex is capable of removing infectious DNA from the supernatant fraction in vitro. (iv) Twenty phage-resistant mutants are unable to undergo the above reactions. A model is developed in which CF serves as a dynamic mediator of the reaction between the transfecting DNA and the cell surface.