The Saccharomyces cerevisiae SPT2 gene was identified by genetic screens for mutations which are suppressors of Ty and delta insertional mutations at the HIS4 locus. The ability of spt2 mutations to suppress the transcriptional interference caused by the delta promoter insertion his-4-912 delta correlates with an increase in wild-type HIS4 mRNA levels. The SPT2 gene is identical to SIN1, which codes for a factor genetically defined as a negative regulator of HO transcription. Mutations in SPT2/SIN1 suppress the effects of trans-acting mutations in SWI genes and of partial deletions in the C-terminal domain of the largest subunit of RNA polymerase II. Nuclear localization and protein sequence similarities suggested that the SPT2/SIN1 protein may be related to the nonhistone chromosomal protein HMG1. To assess the significance of this structural similarity and identify domains of SPT2 functionally important in the regulation of his4-912 delta, we have studied recessive and dominant spt2 mutations created by in vitro mutagenesis. We show here that several alleles carrying C-terminal deletions as well as point mutations in the C-terminal domain of the SPT2 protein exhibit a dominant suppressor phenotype. C-terminal basic residues necessary for wild-type SPT2 protein function which are absent from HMG1 have been identified. The competence of these mutant SPT2 proteins to interfere with the maintenance of the His- (Spt+) phenotype of a his4-912 delta SPT2+ strain is lost by deletion of internal HMG1-like sequences and is sensitive to the wild-type SPT2+ gene dosage. Using cross-reacting antipeptide polyclonal antibodies, we demonstrate that the intracellular level of the wild-type SPT2 protein is not affected in presence of dominant mutations and furthermore that the reversion of the dominance by internal deletion of HMG1-like sequences is not mediated by altered production or stability of the mutant polypeptides. Our results suggest that the products of dominant alleles directly compete with the wild-type protein. On the basis of primary sequence similarities, we propose that an HMG-box-like motif is required for SPT2 function in vivo and that this motif also is necessary for the dominant suppressor phenotype exhibited by some mutant SPT2 alleles.