Coordinate transcriptional control of yeast genes involved in phospholipid biosynthesis is mediated by the inositol/choline-responsive element (ICRE) contained in the respective promoter regions. Regulatory genes INO2 and INO4, both encoding basic helix-loop-helix (bHLH) proteins, are necessary for ICRE-dependent gene activation. By the use of size variants and by heterologous expression in E. coli we demonstrate that Ino2p and Ino4p are both necessary and sufficient for the formation of the previously described FAS binding factor 1, Fbf1, interacting with the ICRE. Formation of a heteromeric complex between Ino2p and Ino4p by means of the respective bHLH domains was demonstrated in vivo by the interaction of appropriate two-hybrid constructs and in vitro by Far-Western analyses. Neither Ino2p nor Ino4p binds to the ICRE as a homodimer. When fused to the DNA-binding domain of Gal4p, Ino2p but not Ino4p was able to activate a UASGAL-containing reporter gene even in the absence of the heterologous Fbf1 subunit. By deletion studies, two separate transcriptional activation domains were identified in the N-terminal part of Ino2p. Thus, the bHLH domains of Ino2p and Ino4p constitute the dimerization/DNA-binding module of Fbf1 mediating its interaction with the ICRE, while transcriptional activation is effected exclusively by Ino2p.