We have used a yeast (Saccharomyces cerevisiae) cell free transcription system to study protein-protein interactions involving the tau1 transactivation domain of the human glucocorticoid receptor that are important for transcriptional transactivation by the receptor. Purified tau1 specifically inhibited transcription from a basal promoter derived from the CYC1 gene and from the adenovirus 2 major late core promoter in a concentration-dependent manner. This inhibition or squelching was correlated with the transactivation activity of tau1. Recombinant yeast TATA-binding protein (yTFIID), although active in vitro, did not specifically reverse the inhibitory effect of tau1. In addition, no specific interaction between tau1 and yTFIID could be shown in vitro by affinity chromatography. Taken together, these results indicate that the tau1 transactivation domain of the human glucocorticoid receptor interacts directly with the general transcriptional apparatus through some target protein(s) that is distinct from the TATA-binding factor. Furthermore, this assay can be used to identify interacting factors, since after phosphocellulose chromatography of a whole-cell yeast extract, a fraction that contained an activity which selectively counteracted the squelching effect of tau1 was found.