One protein can activate some genes and repress others in the same cell. The Drosophila protein Dorsal (which, like the human protein NF-kappa B3, is a member of the Rel family of transcriptional activators) activates the twist gene and represses the zen gene in the ventral region of early embryos. Here we describe a Drosophila HMG1 protein, called DSP1 (dorsal switch protein), that converts Dorsal and NF-kappa B from transcriptional activators to repressors. This effect requires a sequence termed a negative regulatory element (NRE), found adjacent to Dorsal-binding sites in the zen promoter and adjacent to the NF-kappa B-binding site in the human interferon-beta (IFN-beta) enhancer. Previous studies have shown that another type of HMG protein, HMG I(Y), can stimulate NF-kappa B activity. Thus, the HMG-like proteins DSP1 and HMG I(Y) can determine whether a specific regulator functions as an activator or a repressor of transcription.