Sp3 is a ubiquitous transcription factor closely related to Sp1. Previous analyses showed that, unlike Sp1, Sp3 fails to activate transcription in certain promoter settings. This is due to the presence of an inhibitory domain located between the second glutamine-rich activation domain and the DNA-binding domain. To further analyze the transcriptional properties of Sp3, we have expressed and purified recombinant Sp3 and Sp1 as epitope-tagged proteins from stable transfected insect cells. We found that Sp3 does act as a strong activator similar to Sp1 in an in vitro transcription assay using Sp1/Sp3-depleted HeLa nuclear extract. However, on the same promoter Sp3 is almost inactive when transfected into cells. Mutational studies demonstrate that a single lysine residue is responsible for the low transcriptional activity of Sp3 in vivo. We show that Sp3, but not a mutant of Sp3 that lacks this lysine residue, is highly acetylated in vivo. Our results strongly suggest that the transcriptional activity of Sp3 is regulated by acetylation. The consequences of acetylation for the activity of Sp3 are discussed.