The yeast YAP1 gene encodes a transcriptional regulatory protein that utilizes a basic region-leucine zipper (bZip) DNA-binding domain to recognize its cognate DNA element. A synthetic reporter gene containing a SV40 AP-1 response element (ARE) cloned upstream of a TRP5 promoter-lacZ gene fusion shows yAP-1-dependent transactivation in vivo. Recent work has shown that changes in the gene dosage of this factor can dramatically alter the ability of a cell to tolerate a host of toxic agents including cadmium, cycloheximide, and sulfometuron methyl. We have focused on the YAP1-dependent cadmium resistance as cells that lack a functional YAP1 gene are hypersensitive to this metal. Deletion mapping experiments define two domains in the carboxyl-terminal region of the yAP-1 protein that are required for normal cadmium tolerance and ARE-TRP5-lacZ expression. Single amino acid substitutions in the bZip domain of yAP-1 indicate that this region is required for normal DNA binding and in vivo function of the protein. Replacement of a non-canonical asparagine with leucine in the yAP-1 leucine zipper leads to production of a defective protein. A substitution mutation in the basic domain converts this mutant protein into a dominant negative factor. The ability of yAP-1 to act as a positive regulator of transcription is required for its biological action.