The orphan receptor steroidogenic factor 1 (SF-1) plays a central role in development and differentiation of the adrenal gland and gonads. It also regulates the expression of several pivotal steroidogenic enzymes and other proteins that are essential for reproductive function. Its mechanism of target gene activation that directs these intricate processes has not been previously established. We demonstrate here that the activation function-2 (AF-2) activation hexamer (AF-2-AH) of SF-1, located within its carboxy- terminal region, is required for reporter gene activation by SF-1, as well as for SF-1-mediated induction of a steroidogenic phenotype in embryonic stem cells. We further demonstrate that SF-1's AF-2-AH is not sufficient for gene activation, requiring an additional, proximally located domain of SF-1, positioned between residues 187-245. Correspondingly, we show that the coactivator SRC-1 potentiates the activity of SF-1 and that the interaction between SF-1 and SRC-1 requires both AF-2-AH and the proximal activation domain. We conclude that SF-1 harbors at least two activation domains within its carboxy terminus and that both are required for its transcriptional activation function and for direct interaction with SRC-1. It is likely that SRC-1 plays a key role in gene regulation by SF-1.