We focus on the mechanism by which MyoD activates transcription. Previous experiments showed that when the 13-amino-acid basic region of E12 replaced the corresponding basic region of MyoD, the resulting MyoD-E12Basic chimeric protein could bind specifically to muscle-specific enhancers in vitro and form dimers with E12, but could not activate a cotransfected reporter gene or convert 10T1/2 cells to muscle. Here we show that back mutation of this chimeric protein (with the corresponding residues in MyoD) re-establishes activation, and we identify a specific alanine involved in increasing DNA binding and a specific threonine required for activation. Using a reporter gene containing MyoD-binding sites located downstream from the transcription start site, we show that MyoD-E12Basic can bind in vivo and thereby inhibit expression of the reporter. In vivo binding is also supported by the fact that the addition of the "constitutive" VP16 activation domain to MyoD-E12Basic restores full trans-activation potential. The normal MyoD-activation domain maps within the amino-terminal 53 residues and can be functionally replaced by the activation domain of VP16. The activity of the MyoD-activation domain is dramatically elevated when deletions are made almost anywhere in the rest of the MyoD molecule, suggesting that the activation domain in MyoD is usually masked. Surprisingly, MyoD-E12Basic can activate transcription in CV1 and B78 cells (but not in 10T1/2 or 3T3 cells), suggesting that the activation function of the basic domain requires a specific factor present in CV1 and B78 cells. We propose that to function, the masked MyoD-activation domain requires the participation of a second factor that recognizes the basic region. We refer to such a factor as a recognition factor.