We have recently identified the Raf kinase inhibitor protein (RKIP) as a physiological endogenous inhibitor of the Raf-1/MEK/extracellular signal-regulated kinase (ERK) pathway. RKIP interfered with MEK phosphorylation and activation by Raf-1, resulting in the suppression of both Raf-1-induced transformation and AP-1-dependent transcription. Here we report the molecular mechanism of RKIP's inhibitory function. RKIP can form ternary complexes with Raf-1, MEK, and ERK. However, whereas MEK and ERK can simultaneously associate with RKIP, Raf-1 binding to RKIP and that of MEK are mutually exclusive. RKIP is able to dissociate a Raf-1-MEK complex and behaves as a competitive inhibitor of MEK phosphorylation. Mapping of the binding domains showed that MEK and Raf-1 bind to overlapping sites in RKIP, whereas MEK and RKIP associate with different domains in Raf-1, and Raf-1 and RKIP bind to different sites in MEK. Both the Raf-1 and the MEK binding sites in RKIP need to be destroyed in order to relieve RKIP-mediated suppression of the Raf-1/MEK/ERK pathway, indicating that binding of either Raf-1 or MEK is sufficient for inhibition. The properties of RKIP reveal the specific sequestration of interacting components as a novel motif in the cell's repertoire for the regulation of signaling pathways.