We have identified a novel transcriptional repressor, AEBP2, that binds to a regulatory sequence (termed AE-1) located in the proximal promoter region of the aP2 gene that encodes the adipose fatty acid-binding protein. Sequence analysis of AEBP2 cDNA revealed that it encodes a protein containing three Gli-Krüppel (Cys2-His2)-type zinc fingers. Northern blot analysis revealed two transcripts (4.5 and 3.5 kilobases) which were ubiquitously expressed in every mouse tissue examined. In co-transfection assays, AEBP2 repressed transcription from the homologous aP2 promoter containing multiple copies of the AE-1 sequence. Moreover, a chimeric construct encoding a fusion AEBP2 protein with the Gal4 DNA-binding domain was able to repress the transcriptional activity of a heterologous promoter containing the Gal4-binding sequence. The transcriptional repression function of AEBP2 was completely abolished when one of the conserved histidine residues and a flanking serine residue in the middle zinc finger were replaced with an arginine residue. The defective transcriptional repression function of the mutant derivative was due neither to lack of expression nor to a failure to localize to the nucleus. Moreover, both the wild-type and mutant derivative of either the histidine-tagged recombinant AEBP2 proteins or the in vitro translated Gal4-AEBP2 fusion proteins were equally able to bind to the target DNA. These results suggest that a portion of the zinc finger structure may play a direct role in transcriptional repression function, but not in DNA binding.