The tumour-suppressor gene p53 is inactivated in most human malignancies either by missense mutations or by binding to oncogenic proteins. In human soft tissue sarcomas, inactivation apparently results from MDM2 gene amplification. MDM2 is an oncogene product that may function by binding to p53 and inhibiting its ability to activate transcription. Here we show that, when expressed in Saccharomyces cerevisiae, human MDM2 inhibits human p53's ability to stimulate transcription by binding to a region that nearly coincides with the p53 acidic activation domain. The isolated p53 activation domain fused to another DNA-binding protein is also inactivated by MDM2, confirming that MDM2 can inhibit p53 function by concealing the activation domain of p53 from the cellular transcription machinery.