Pax-3 is a member of the Pax family of transcription factors involved in transcriptional control events during embryonic development. Here we report a functional dissection of the Pax-3 protein and describe the protein domains which are responsible for different activities. A transcription inhibition activity is located in the first 90 N-terminal amino acids and includes part of the paired domain. Furthermore, the C terminus of Pax-3 is able to confer transcriptional activation of basal promoters. Pax-3 can utilize both transcription modulating functions and activates transcription over a narrow range of protein concentration in the presence of promoter elements containing functional binding sites.