The type 3 form of maturity-onset diabetes of the young (MODY3) results from mutations in the gene encoding the transcription factor, hepatocyte nuclear factor-1alpha (HNF-1alpha). The mechanism by which mutations in only one allele of the HNF-1alpha gene impair pancreatic beta-cell function is unclear. The functional form of HNF-1alpha is a dimer--either a homodimer or a heterodimer with the structurally related protein HNF-1beta--that binds to and activates transcription of the genes whose expression it regulates. HNF-1alpha is composed of three functional domains: an amino-terminal dimerization domain (amino acids 1-32), a DNA-binding domain with POU-like and homeodomain-like motifs (amino acids 150-280), and a COOH-terminal transactivation domain (amino acids 281-631). Because the dimerization domain is intact in many of the mutant forms of HNF-1alpha found in MODY subjects, these mutant proteins may impair pancreatic beta-cell function by forming nonproductive dimers with wild-type protein, thereby inhibiting its activity; that is, they are dominant-negative mutations. This hypothesis was tested by comparing the functional properties of the frameshift mutation P291fsinsC, the most common mutation identified to date in MODY3 patients, and wild-type HNF-1alpha. P291fsinsC-HNF-1alpha showed no transcriptional transactivation activity in HeLa cells, which lack endogenous HNF-1alpha. Overexpression of P291fsinsC-HNF-1alpha in MIN6 cells, a mouse beta-cell line, resulted in an approximately 40% inhibition of the endogenous HNF-1alpha activity in a dosage-dependent manner. Furthermore, heterodimer formation between wild-type and P291fsinsC mutant proteins were observed by electrophoretic mobility shift assay. These data suggest that the P291fsinsC mutation in HNF-1alpha functions as a dominant-negative mutation. However, other mutations, such as those in the promoter region and dimerization domain, may represent loss of function mutations. Thus mutations in the HNF-1alpha gene may lead to beta-cell dysfunction by two different mechanisms.