Glucocorticoids are potent inhibitors of collagenase induction by phorbol esters and inflammatory mediators. The target for this negative effect is the AP-1 site within the collagenase promoter, which also mediates its induction. Negative regulation is due to repression of AP-1 activity by the glucocorticoid receptor (GCR). While the GCR is a potent inhibitor of AP-1 activity (Jun/Fos), both c-Jun and c-Fos are potent repressors of GCR activity. In vitro experiments using purified GCR and c-Jun proteins suggest that mutual repression is due to direct interaction between the two. Direct interaction between GCR and either c-Jun or c-Fos is demonstrated by cross-linking and coimmunoprecipitation. These findings reveal a cross talk between two major signal transduction systems used to control gene transcription in response to extracellular stimuli, and a novel mechanism for transcriptional repression.