Initiation of bacteriophage lambda DNA replication in vivo and in crude in vitro systems is strongly dependent on transcription at or near the lambda replication origin (ori lambda). Through its capacity to prevent RNA polymerase-mediated 'transcriptional activation' of lambda DNA replication, the lambda cI repressor is capable of negatively regulating initiation of lambda DNA replication, even when all required replication proteins are present. Surprisingly, the strict requirement for transcriptional activation of lambda DNA replication was lost when lambda replication was initiated in an in vitro system composed of nine purified replication proteins [Mensa-Wilmot et al. (1989) J. Biol. Chem., 264, 2853-2861]. We have found that crude extracts of Escherichia coli contain proteins that are capable of restoring the physiological linkage between transcription and ori lambda-dependent replication when they are added to the nine-protein replication system. The protein primarily responsible for this effect has been purified and identified as protein HU, a histone-like protein that is a major constituent of the bacterial nucleoid. HU, when present at a 1:1 weight ratio with supercoiled ori lambda plasmid, is a potent inhibitor of lambda DNA replication in the nine-protein replication system. However, when the ori lambda template is transcribed by E. coli RNA polymerase, the HU-mediated inhibition of lambda DNA replication is abolished. HU does not inhibit propagation of lambda replication forks. Instead, HU apparently interferes with the assembly or function of nucleoprotein structures containing the E. coli DnaB helicase that are formed at ori lambda prior to priming and DNA synthesis. We suggest that the chromatin structure of the template DNA in the region surrounding ori lambda plays a central role in the negative regulation of the initiation of lambda DNA replication in vivo.