We have isolated a cDNA encoding Drosophila transcription factor IIB (dTFIIB) and characterized the properties of recombinant dTFIIB with a reconstituted in vitro transcription system derived from Drosophila embryos. Purified, recombinant dTFIIB is fully active at a concentration of one molecule per template DNA. With different promoters, the transcriptional activity of dTFIIB was similar but not identical to that of human TFIIB, which suggests that there may be variations in the mechanisms by which TFIIB functions in transcription. We have also found that recombinant dTFIIB suppressed nonspecific initiation of transcription by RNA polymerase II by a mechanism that appears to involve direct interaction between TFIIB and the polymerase. Addition of excess dTFIIB to transcription reactions resulted in promoter-specific repression of transcription. These experiments have led to the hypothesis that TFIIB interacts with a basal transcription factor that is required for transcription of some, but not all, genes and that the presence of excess dTFIIB results in sequestration of the promoter-specific basal factor to prevent its assembly into a productive transcription complex. Excess dTFIIB did not, however, affect the ability of either GAL4-VP16 or Sp1 to stimulate transcription. These data indicate that in contrast to current models, GAL4 derivatives do not activate transcription by increasing the rate of assembly of TFIIB into the transcription complex.