Transcription factor AP-1 is inducible by phorbol esters and thus could be considered to be one final target of the protein kinase C signal transduction pathway. AP-1 consists of the products of the fos and jun oncogenes, which associate as dimers to bind TPA-responsive promoter elements (TRE) efficiently. We show that AP-1 activity is modulated by an inhibitory protein (IP-1), present both in the nucleus and cytoplasm of several cell types. IP-1 specifically blocks DNA binding of AP-1 from nuclear extracts and of in vitro synthesized Fos/Jun proteins. It is a labile protein of 30-40 kd, which exerts its activity only in the nonphosphorylated form. Block of IP-1 function is obtained by PKA-mediated phosphorylation, possibly suggesting a cross talk mechanism at transcriptional level. Competition experiments with synthetic peptides suggest that IP-1 could interact with Fos and/or Jun leucine zippers. We speculate that IP-1 might act as a transcriptional antioncogene.