The retinoblastoma gene product, pRb, negatively regulates cell proliferation by modulating the activity of the transcription factor E2F1 that controls expression of S-phase genes. To dissect transcriptional regulation of E2F1 by pRb, we developed a means to control the subcellular localization of pRb by exchanging its constitutive nuclear localization signal (NLS) with an inducible nuclear targeting domain from the glucocorticoid receptor (GR). In co-transfection experiments in hormone-free media, pRb delta NLS-GR sequestered E2F1 in the cytoplasm; addition of steroid hormones induced co-translocation of pRb delta NLS-GR and E2F1 to the nucleus. A pRb allele lacking a NLS, pRb delta NLS, also sequestered E2F1 in the cytoplasm. Both nuclear and cytoplasmic pRb delta NLS-GR repressed transcription from a simple, E2F1-activated, promoter equally well. pRb delta NLS-GR exerted differential effects on complex promoters containing an activator and E2F sites that acted as either positive or negative elements. We propose a dual mechanism of transcriptional repression by pRb which allows tight control of E2F1-responsive genes: a pRb-E2F1 repressor unit is assembled off DNA to pre-empt transcriptional activation by E2F1; recruitment of this repressor unit to cognate binding sites on promoters allows silencing of adjacent promoter elements.