Three of the ets oncogene superfamily members v-ets, Spi-1/PU.1 and Fli-1, have been shown to be directly involved in retroviral-mediated acute erythroleukemias. The Fli-1 gene was found to be rearranged in 75% of the erythroleukemias induced by Friend murine leukemia virus (F-MuLV), suggesting that it could play a key role in cellular transformation. We have previously isolated and characterized the human Fli-1 gene and have found it to be highly homologous (80%) to the human erg-2 gene. Human Fli-1 was also shown to be rearranged in Ewing's sarcoma cases, in which the amino-terminal region of the Fli-1 gene was replaced with a novel coding region of a putative RNA-binding protein, EWS. In this report, we show that the recombinant Fli-1 protein expressed in bacteria binds to DNA in a sequence-specific manner. It appears that Fli-1 and erg proteins fall into the category of ets proteins that recognize limited ets target sequences, unlike c-ets-1, ets-2 and Elk-1. The Fli-1 gene was found to activate the transcription of the reporter gene that was linked to Fli-1 target sequences, suggesting that Fli-1 is a sequence-specific transcriptional activator. Deletion analysis revealed the presence of two autonomous transcriptional activation domains, one at the amino-terminal region (amino-terminal transcriptional activation domain, ATA) and the other at the carboxy-terminal region (carboxy-terminal transcriptional activation domain, CTA). Secondary structural analysis of ATA and CTA domains revealed the presence of helix-loop-helix (H-L-H) and/or turn-loop-turn (T-L-T) regions. From these results it appears that a portion of the Fli-1 ATA domain (H-L-H region) was replaced by the amino-terminal domain of EWS gene in Ewing's sarcoma cases. Therefore alteration in the transcriptional activation function of Fli-1 may be responsible for human malignancies such as sarcomas, leukemias and lymphomas in which this gene is rearranged.