The lineage-specific transcription factors GATA-1 and PU.1 can physically interact to inhibit each other's function, but the mechanism of repression of GATA-1 function by PU.1 has not been elucidated. Both the N terminus and the C terminus of PU.1 can physically interact with the C-terminal zinc finger of GATA-1. It is demonstrated that the PU.1 N terminus, but not the C terminus, is required for inhibiting GATA-1 function. Induced overexpression of PU.1 in K562 erythroleukemia cells blocks hemin-induced erythroid differentiation. In this system, PU.1 does not affect the expression of GATA-1 messenger RNA, protein, or nuclear localization. However, GATA-1 DNA binding decreases dramatically. By means of electrophoretic mobility shift assays with purified proteins, it is demonstrated that the N-terminal 70 amino acids of PU.1 can specifically block GATA-1 DNA binding. In addition, PU.1 had a similar effect in the G1ER cell line, in which the GATA-1 null erythroid cell line G1E has been transduced with a GATA-1-estrogen receptor fusion gene, which is directly dependent on induction of the GATA-1 fusion protein to effect erythroid maturation. Consistent with in vitro binding assays, overexpression of PU.1 blocked DNA binding of the GATA-1 fusion protein as well as GATA-1-mediated erythroid differentiation of these G1ER cells. These results demonstrate a novel mechanism by which function of a lineage-specific transcription factor is inhibited by another lineage-restricted factor through direct protein-protein interactions. These findings contribute to understanding how protein-protein interactions participate in hematopoietic differentiation and leukemogenesis. (Blood. 2000;96:2641-2648)