An activity in yeast nuclear extracts (termed ADI) is described that inhibits the binding of the TATA-binding protein (TBP) to DNA in an ATP-dependent manner. The effect is reversible, ATP specific, rapid, and is not promoter specific. ADI is specific for TBP because three other protein-DNA complexes are not affected by ADI. The action of ADI is blocked by association of TFIIA with the TBP-DNA complex. ADI activity at the adenovirus major late promoter requires a segment of DNA upstream from the TATA sequence, suggesting that ADI recognizes aspects of both TBP and DNA. The evolutionarily conserved carboxy-terminal domain of TBP is sufficient for ADI recognition, and amino acids in the basic region of TBP are required for ADI action. ADI can repress transcription in vitro in an ATP-dependent manner. In the presence of ADI, both TFIIA and TBP are required to commit a template to transcription. A model of ADI action is proposed, and possible roles of ADI in the regulation of the transcription complex assembly are discussed.