We have isolated two novel Krüppel-like zinc finger proteins containing the evolutionarily conserved Krüppel-associated box (KRAB), KRAZ1 and KRAZ2, and demonstrated that they repress transcription when heterologously targeted to DNA. Their repression activity appeared to be mediated by the putative corepressor KAP-1 (KRAB-associated protein-1), because KRAZ1/2 bind to KAP-1, but KRAB mutants of KRAZ1/2 that are unable to interact with KAP-1 lack repression activity, and KAP-1 has intrinsic repressor activity and potentiates KRAZ1/2-mediated repression. We dissected the KAP-1 protein into a KRAB-interacting domain and a region necessary for repression. Using a mammalian two-hybrid assay, we further demonstrated that KAP-1 deletions lacking repression activity fused to the VP16 transactivation domain strongly activated transcription when coexpressed with KRAZ1. In contrast, VP16-KAP-1 fusions retaining repression activity resulted in repression. These results provide the first evidence that KAP-1 functionally interacts with KRAB in mammalian cells and seems to exert repressor activity in the DNA-bound KRAB-KAP-1 complex, and they further support the hypothesis that KAP-1 functions as a corepressor for the large class of KRAB-containing zinc finger proteins.