Tam-67 is an amino-terminal deletion mutant of c-Jun (Δ3-122) lacking most of the c-Jun transactivation domain, which has been shown previously to function in a transdominant fashion to inhibit c-Jun-induced transactivation and cellular transformation. In order to create a ligand-dependent dominant negative repressor of AP-1, we have constructed a fusion of the TAM-67 gene with the ligand binding domain of the estrogen receptor. Fusion of TAM-67 with the ligand binding domain of the estrogen receptor produced a 68 kD protein (TAM-67ER) which was immunoprecipitated by c-Jun-specific and estrogen receptor-specific antisera and shown by gel retardation assay to bind oligonucleotides containing an AP-1 sequence. Cotransfection of TAM-67ER and an AP-1-dependent reporter construct into rat embryo cells demonstrated ligand specific inhibition of AP-1 transactivation. In the absence of hormone, TAM-67ER produced complete inhibition of c-Jun-induced AP-1 transactivation. This inhibition was relieved by treatment with estradiol but not by treatment with tamoxifen. In addition, TAM-67ER inhibited activated c-Ha-ras- or c-raf-induced transformation of NIH3T3 cells. However, this inhibition of transformation was not relieved by the addition of estrogen. Thus, TAM-67ER inhibits transactivation in a ligand-dependent manner, but inhibits transformation in a ligand-independent manner. The results suggest that the ligand-dependent transactivation domain of the estrogen receptor (TAF-2) can substitute for the c-Jun transactivation domain absent in TAM-67 to stimulate transactivation. However, TAF-2 cannot substitute for the missing c-Jun transactivation domain to induce cellular transformation.