The thymidine analog, 1-(2-deoxy-2-fluoro-beta-D-arabino-furanosyl)-5-iodouracil (FIAU), is incorporated into DNA in cell culture and in vivo. To investigate the effect of incorporation of FIAU into DNA on the binding of transcription factors, oligonucleotide duplexes which bind specifically to activator protein 1 (AP-1) or to TFIID were synthesized and binding of these oligonucleotides to their respective proteins was studied using gel-shift analysis. When thymidine at position -3, -1, 1 or 7 (relative to the first thymidine of the core binding sequence) was replaced with FIAU, binding to AP-1 was approximately 82, 28, 86 and 51%, respectively, of the binding to the non-substituted oligonucleotide to AP-1. When thymidine at position 3 or 5 (each adjacent to the center of dyad symmetry) was replaced with FIAU, binding to AP-1 was abrogated. Oligonucleotides containing FIAU at positions -1, 3 or 5, were much less able to compete with radiolabeled wild-type oligonucleotides for binding to AP-1. In contrast, the presence of FIAU, depending on its location, resulted in the increased binding of TFIID to its consensus target DNA sequence. These results indicate that incorporation of FIAU into DNA may induce local conformational changes resulting in the altered ability of transcriptional factors to bind to their cognate DNA sequences. Additional studies demonstrated that the presence of FIAU at a position 5' to the cleavage site in the consensus sequence T*TAA (where * is the cleavage site) inhibited restriction of the oligomeric duplex by MseI.