Previous studies have shown that (i) Dal81p and Dal82p are required for allophanate-induced gene expression in Saccharomyces cerevisiae; (ii) the cis-acting element mediating the induced transcriptional response to allophanate is a dodecanucleotide, UIS(ALL); and (iii) Dal82p binds specifically to UIS(ALL). Here we show that Dal82p is localized to the nucleus and parallels movement of the DNA through the cell cycle. Deletion analysis of DAL82 identified and localized three functional domains. Electrophoretic mobility shift assays identified a peptide (consisting of Dal82p amino acids 1-85) that is sufficient to bind a DNA fragment containing UIS(ALL). LexA-tethering experiments demonstrated that Dal82p is capable of mediating transcriptional activation. The activation domain consists of two parts: (i) an absolutely required core region (amino acids 66-99) and (ii) less well defined regions flanking residues 66-99 that are required for full wild-type levels of activation. The Dal82p C terminus contains a predicted coiled-coil motif that down-regulates Dal82p-mediated transcriptional activation.