In Klebsiella pneumoniae, transcription of all nif (nitrogen fixation) operons except the regulatory nifLA operon itself is regulated by the proteins NifA and NifL. NifA, an enhancer-binding protein, activates transcription by RNA polymerase containing the alternative sigma factor sigma 54. The central catalytic domain of NifA is sufficient for transcriptional activation, which can occur from solution. In vivo, NifL antagonizes the action of NifA in the presence of molecular oxygen or combined nitrogen. Inhibition has also been shown in vitro, but it was not responsive to environmental signals. Assuming a two-domain structure of NifL, we localized inhibition by NifL to its carboxy (C)-terminal domain, which is more soluble than the intact protein. The first line of evidence for this is that internal deletions of NifL containing an intact C-terminal domain were able to inhibit transcriptional activation by NifA in a coupled transcription-translation system. The second line of evidence is that the isolated C-terminal domain of NifL (assayed as a fusion to the soluble maltose-binding protein [MBP]) was sufficient to inhibit transcriptional activation by the central domain of NifA in a purified transcription system. The final line of evidence is that an MBP fusion to the C-terminal domain of NifL inhibited transcriptional activation by NifA in vivo. On the basis of these data, we postulate that the inhibitory function of NifL lies in its C-terminal domain and hence infer that this domain is responsible for interaction with NifA. Gel filtration experiments with MBP-NifL fusion derivatives lacking portions of the N- or C-terminal domain of the protein revealed that the C-terminal domain is the most soluble part of NifL. Up to 50% of two MBP-NifL truncations containing only the C-terminal domain appeared to be in a defined dimeric state.