In vitro studies of the effect of aflatoxin B1-dichloride (AFB1-Cl2) on the template function for RNA synthesis of several single- and double-stranded synthetic DNAs containing cytosine and/or hypoxanthine bases are reported. The results indicate: (i) AFB1-Cl2 strongly inhibits the template function of the single-stranded homopolymer polydC and has no effect on polydI, (ii) the inhibition is stronger when cytosine is in the double-stranded alternating copolymer poly[d(I-C)], and (iii) polydI directed RNA synthesis can be inhibited if it is in the double-stranded homopolymer polydI.polydC, although the template function of the polydC strand is still inhibited to a greater extent. The evidence that the selective inhibition of the DNA template function is a direct reflection of the binding specificities of AFB1-Cl2 is provided by the binding studies of [3H]AFB1-Cl2 to these DNAs. The binding of AFB1-Cl2 to polydC is substantiated by the dose-response template inhibition and by the dose-response template binding studies. Additionally, these results show that AFB1 per se has neither inhibitory nor binding activity. Auto radiography of [alpha-32P]GTP labeled RNAs suggests that the mechanism of inhibition of polydC template function by AFB1-Cl2 is mainly due to the inhibition of the elongation of RNA synthesis. Spectrum measurement of the products of enzyme digestion of the AFB1-Cl2 modified polydC reveals that the deoxycytidine fraction gives a typical cytosine absorption peak at 275 nm followed by a broad peak between 300 and 400 nm with a maximum at 390 nm. High performance liquid chromatography confirms the existence of a cytosine-AFB1 adduct which absorbs strongly in the regions between 250 and 400 nm with peaks identifiable at 260, 350 and 390 nm. These results strongly suggest that AFB1 in the activated form of AFB1-Cl2 is able to covalently bind to cytosine in DNA.