The adenovirus E1a region encodes two closely related gene products: 243 and 289 amino acid phosphoproteins. These proteins differ in their primary sequence only by 46 amino acids unique to the 289 amino acid protein. By constructing single-base substitution mutants we localized two functional regions of these E1a proteins: one required for efficient transcriptional activation, another required for efficient transcriptional repression. The 289 amino acid protein contains both regions and appears to function primarily as a transcriptional activator. The 243 amino acid protein lacks the transcriptional activation domain and appears to function primarily as a transcriptional repressor. Mutations within a highly conserved region define a novel class of transformation-defective mutants. These mutant E1a proteins can still efficiently activate transcription of early viral and cellular genes but cannot repress transcription of target genes. The fact that viral transformation may require a transcriptional repression function provides new insights into the mechanism by which adenovirus transforms cells.