Ligand-activated retinoic acid receptor alpha (RAR alpha) and c-ErbA alpha repress the AP-1-mediated transcriptional activation of the interstitial collagenase gene promoter by specifically decreasing the activity of the AP-1 transcription factor. On the other hand, the v-ErbA oncoprotein fails to repress the AP-1 activity and acts as a dominant negative oncoprotein by overcoming the repression of the AP-1 activity induced by RAR alpha and c-ErbA alpha. This maintenance by v-ErbA of a fully active AP-1 complex is correlated with the abrogation by this same oncogene product of the growth-inhibitory response of chicken embryo fibroblasts to retinoic acid treatment. This new mechanism of action of v-ErbA together with its previously discovered dominant repressor effect on transcription of thyroid hormone-activated target genes may explain the contribution of the v-erbA oncogene to sarcomatogenic and leukemogenic transformation.