The transcription factor USF1 belongs to the family of basic helix-loop-helix proteins that are involved in the regulation of various important cellular processes. Here we characterized the factors involved in the activation of transcription by upstream stimulatory factor 1 (USF1) in a reconstituted class II gene transcription system. Activation of transcription by both wild type USF1 and a GAL-USF (amino acids 1-94 of the yeast activator protein GAL4 fused to amino acids 17-196 of USF) fusion protein required the presence of at least one positive cofactor. A novel positive cofactor (PC5) that functions specifically through the activation domain of USF1 was partially purified and biochemicaly distinguished from previously described positive cofactors. The mechanism by which PC5 mediates activation of transcription through USF1 was investigated in order-of-addition experiments. PC5 had to be present during binding of transcription factor (TF) IID to the TATA box to observe transcriptional activation. However, this event alone did not result in transcriptional activation, which also required the presence of the activator and of PC5 after binding of TFIID. Hence, PC5 may enter transcription during binding of TFIID to function in concert with the activator during subsequent steps in transcription.