Analysis of the relationship between transcriptional activators and chromatin organization has focused largely on lower levels of chromatin structure. Here we describe striking remodeling of large-scale chromatin structure induced by a strong transcriptional activator. A VP16-lac repressor fusion protein targeted the VP16 acidic activation domain to chromosome regions containing lac operator repeats. Targeting was accompanied by increased transcription, localized histone hyperacetylation, and recruitment of at least three different histone acetyltransferases. Observed effects on large-scale chromatin structure included unfolding of a 90-Mbp heterochromatic chromosome arm into an extended 25-40-micrometers chromonema fiber, remodeling of this fiber into a novel subnuclear domain, and propagation of large-scale chromatin unfolding over hundreds of kilobase pairs. These changes in large-scale chromatin structure occurred even with inhibition of ongoing transcription by alpha-amanitin. Our results suggest a functional link between recruitment of the transcriptional machinery and changes in large-scale chromatin structure. Based on the observed long-range propagation of changes in large-scale chromatin structure, we suggest a possible rationale for the observed clustering of housekeeping genes within Mbp-sized chromosome bands.