We have addressed the functional significance of the existence of several natural splice variants of NF1-C* differing in their COOH-terminal proline-rich transactivation domain (PRD) by studying their specific DNA binding and transactivation in the yeast Saccharomyces cerevisiae. These parameters yielded the intrinsic transactivation potential (ITP), defined as the activation observed with equal amounts of DNA bound protein. Exchange of 83 amino acids at the COOH-terminal end of the PRD by 16 unrelated amino acids, as found in NF1-C2, and splicing out the central region of the PRD, as found in NF1-C7, enhanced DNA binding in vivo and in vitro. However, the ITP of the splice variants NF1-C2 and NF1-C7 was found to be similar to that of the intact NF1-C1. Additional mutations showed that the ITP of NF1-C requires the synergistic action of the PRD and a novel domain encoded in exons 5 and 6. Intriguingly the carboxyl-terminal domain-like motif encoded in exons 9/10 is not essential for transactivation of a reporter with a single NF1 site but is required for activation of a reporter with six NF1 sites in tandem. Our results imply that differential splicing is used to regulate transcription by generating variants with different DNA binding affinities but similar ITPs.