A small plasmid DNA was assembled into chromatin in vitro by incubation in an extract prepared frog eggs of Xenopus laevis. The plasmid DNA contrained the regulatory region of the Escherichia coli lac operon, the transcription of which is under positive regulation by catabolite activator protein (CAP) and negative regulation by lac repressor. After incubation in the egg extract the plasmid DNA acquired approximately 60% of the predicted maximum number of nucleosomes. Chromatin was treated with protein and DNA cross-linking agents prior to transcriptin in order to demonstrate that regions of the DNA organized into nucleosomes served as templates for transcription. Cross-linking abolished transcription of chromatin but had no effect on transcription of the DNA, suggesting that transcription of untreated chromatin was not solely attributable to nucleosome-free regions. In support of this conclusion, the average size of the RNA transcribed from chromatin was approximately 1000 bases, which was approximately 5 times longer than the average distance between nucleosomes. Transcription of in vitro assembled plasmid chromatin by E. coli RNA polymerase was stimulated by catabolite activator protein. The CAP-mediated stimulation of transcription was detectable as an increase in total transcription that was specific to chromatin made from a plasmid containing the lac regulatory DNA sequences. The specific increase in the amount of RNA whose synthesis was initiated within the lac region was demonstrated by hybridization of transcription products to complementary DNA fragments bound to nitrocellulose filters. Preliminary investigation of the action of lac repressor suggested that it also modulated transcription from the chromatin template.