We report on the identification of a nuclear protein that serves as a dominant-negative inhibitor of the transcription factors C/EBP and LAP. A 32P-labeled LAP DNA-binding and dimerization domain "zipper probe" was used to isolate a clone that encodes a new C/EBP-homologous protein: CHOP-10. CHOP-10 has strong sequence similarity to C/EBP-like proteins within the bZIP region corresponding to the DNA-binding domain consisting of a leucine zipper and a basic region. Notably, however, CHOP-10 contains 2 prolines substituting for 2 residues in the basic region, critical for binding to DNA. Thus, heterodimers of CHOP-10 and C/EBP-like proteins are unable to bind their cognate DNA enhancer element. CHOP-10 mRNA is expressed in many different rat tissues. Antisera raised against CHOP-10 recognize a nuclear protein with an apparent molecular mass of 29 kD. CHOP-10 is induced upon differentiation of 3T3-L1 fibroblasts to adipocytes, and cytokine-induced dedifferentiation of adipocytes is preceded by the loss of nuclear CHOP-10. Coimmunoprecipitation of CHOP-10 and LAP from transfected COS-1 cells demonstrated a direct interaction between the two proteins, in vivo. Consistent with the structure of its defective basic region, bacterially expressed CHOP-10 inhibits the DNA-binding activity of C/EBP and LAP by forming heterodimers that cannot bind DNA. In transfected HepG2 cells, expression of CHOP-10 attenuates activation of C/EBP- and LAP-driven promoters. We suggest that CHOP-10 is a negative modulator of the activity of C/EBP-like proteins in certain terminally differentiated cells, similar to the regulatory function of Id on the activity of MyoD and MyoD-related proteins important in the development of muscle cells.