Mad-Max heterodimers have been shown to antagonize Myc transforming activity by a mechanism requiring multiple protein-protein and protein-DNA interactions. However, the mechanism by which Mad functions in differentiation is unknown. Here, we present evidence that Mad functions by an active repression mechanism to antagonize the growth-promoting function(s) of Myc and bring about a transition from cellular proliferation to differentiation. We demonstrate that exogenously expressed c-Myc blocks inducer-mediated differentiation of murine erythroleukemia cells without disrupting the induction of endogenous Mad; rather, high levels of c-Myc prevent a heterocomplex switch from growth-promoting Myc-Max to growth-inhibitory Mad-Max. Cotransfection of a constitutive c-myc with a zinc-inducible mad1 results in clones expressing both genes, whereby a switch from proliferation to differentiation can be modulated. Whereas cells grown in N'N'-hexamethylene bisacetamide in the absence of zinc fail to differentiate, addition of zinc up-regulates Mad expression by severalfold and differentiation proceeds normally. Coimmunoprecipitation analysis reveals that Mad-Max complexes are in excess of Myc-Max in these cotransfectants. Moreover, we show that the Sin-binding, basic region, and leucine zipper motifs are required for Mad to function during a molecular switch from proliferation to differentiation.