Sp3 is a ubiquitously expressed human transcription factor closely related to Sp1 and Sp4. All three proteins contain a highly conserved DNA binding domain and two glutamine-rich regions, suggesting that they possess similar activation functions. In our previous experiments, however, Sp3 failed to activate transcription. Instead, it repressed Sp1-mediated transcriptional activation, suggesting that it is an inhibitory member of this family of regulatory factors. Here we show that Sp3 can also act as a positive regulator of transcription. The glutamine-rich domains on their own have a strong activation function and interact with the TATA box binding protein (TBP)-associated factor dTAFII110. However, in full-length Sp3 as well as in Gal4-Sp3 fusion proteins, both activation domains are silenced by an inhibitory domain located between the second glutamine-rich region and the DNA binding domain. The inhibitory domain completely suppressed transcriptional activation when fused to a heterologous glutamine-rich domain but only moderately suppressed transcription when linked to an acidic activation domain. Site-directed mutagenesis identified a stretch of highly charged amino acid residues essential for inhibitor function. Substitution of the amino acid triplet KEE by alanine residues within this region changed the almost transcriptionally inactive Sp3 into a strong activator. Our results suggest that the transcriptional activity of Sp3 might be regulated in vivo by relief of inhibition.