Steroid receptors are ligand-inducible transcription factors, and their association with steroid receptor coactivators (SRCs) upon binding to DNA is necessary for them to achieve full transcriptional potential. To understand the mechanism of SRC-1 action, its ability to interact and enhance the transcriptional activity of steroid receptors was analyzed. First, we show that SRC-1 is a modular coactivator that possesses intrinsic transcriptional activity when tethered to DNA and that it harbors two distinct activation domains, AD1 and AD2, needed for the maximum coactivation function of steroid receptors. We also demonstrate that SRC-1 interacts with both the amino-terminal A/B or AF1-containing domain and the carboxyl-terminal D/E or AF2-containing domain of the steroid receptors. These interactions are carried out by multiple regions of SRC-1, and they are relevant for transactivation. In addition to the inherent histone acetyltransferase activity of SRC-1, the presence of multiple receptor-coactivator interaction sites in SRC-1 and its ability to interact with components of the basic transcriptional machinery appears to be, at least in part, the mechanism by which the individual activation functions of the steroid receptors act cooperatively to achieve full transcriptional activity.