Chromosomal proteins HMG-14 and HMG-17 are the only known nuclear proteins which specifically bind to the nucleosome core particle and are implicated in the generation and/or maintenance of structural features specific to active chromatin. The two proteins facilitate polymerase II and III transcription from in vitro- and in vivo-assembled circular chromatin templates. Here we used deletion mutants and specific peptides to identify the transcriptional enhancement domain and delineate the nucleosomal binding domain of the HMG-14 and -17 proteins. Deletion of the 22 C-terminal amino acids of HMG-17 or 26 C-terminal amino acids of HMG-14 reduces significantly the ability of the proteins to enhance transcription from chromatin templates. In contrast, N-terminal truncation mutants had the same transcriptional enhancement activity as the full-length proteins. We conclude that the negatively charged C-terminal region of the proteins is required for transcriptional enhancement. Chromatin transcription enhancement assays, which involve binding competition between the full-length proteins and peptides derived from their nucleosomal binding regions, indicate that the minimal nucleosomal binding domain of human HMG-17 is 24 amino acids long and spans residues 17 to 40. The results suggest that HMG-14 and -17 proteins have a modular structure and contain distinct functional domains.