The product of the retinoblastoma (Rb) susceptibility gene ( RB-1 ) regulates expression of a variety of growth control genes via discrete promoter elements termed retinoblastoma control elements (RCEs). We have previously shown that RCEs are bound and regulated by a common set of ubiquitously expressed nuclear proteins of 115, 95 and 80 kDa, termed retinoblastoma control proteins (RCPs). We have also previously determined that Sp3 and Sp1, two members of the Sp family of transcription factors, encode the 115 and 95 kDa RCPs respectively and that Rb stimulates Sp1/Sp3-mediated transcription in vivo. In this report we have extended these results by determining that the 80 kDa RCP arises from Sp3 mRNA via translational initiation at two internal sites located within the Sp3 trans -activation domain. Internally initiated Sp3 proteins readily bind to Sp1 binding sites in vitro yet have little or no capacity to stimulate transcription of Sp-regulated genes in vivo. Instead, these Sp3-derived proteins function as potent inhibitors of Sp1/Sp3- mediated transcription. Since cell cycle- or signal- induced expression of a variety of genes, including p21 waf1/cip1, p15 INK4B, CYP11A, mdr1 and acetyl-CoA carboxylase, have been mapped to GC-rich promoter elements that bind Sp family members, we speculate that alterations of the protein and/or DNA binding activities of internally initiated Sp3 isoforms may account in part for the regulation of such differentially expressed genes.