Genetic alterations in elements of normal signal transduction mechanisms are known to be oncogenic events often resulting in aberrant activation of programs of gene transcription. We have investigated the effect of N-ras oncogene-induced tumorigenic transformation on the transcription factor AP-2. N-ras oncogene-induced transformation of human teratocarcinoma cells PA-1 results in sixfold elevated AP-2 mRNA levels. However, the level of AP-2-mediated trans-activation is dramatically inhibited in these cells. We show here that the high-level expression of AP-2 ultimately results in transcriptional "self-interference". The activation domain of AP-2, when fused to the DNA-binding domain of GAL4, is sufficient for self-interference. Non-N-ras PA-1 cells constitutively expressing AP-2 or GAL4-AP-2 fusion protein from an SV40 promoter exhibit reduced AP-2-mediated transcriptional activation, inhibition of differentiation, and promotion of anchorage-independent growth, properties that are similar to N-ras-transformed PA-1 cells. Thus, AP-2 is placed in the N-ras signal transduction pathway, and many of the biological effects of N-ras can be accomplished by overexpression of AP-2. This is the first evidence that inhibition of the activity of a transcription factor by self-interference contributes to a physiological process.