The components of the antigen processing machinery, low molecular mass polypeptide (LMP) 2 and transporter associated with antigen processing (TAP) 1, are encoded by closely linked genes within the major histocompatibility complex class II subregion. Although the two genes share a bi-directional promoter, LMP2 and TAP1 have differential cellular expression. TAP1 is expressed constitutively. However, LMP2 expression requires induction by interferon-gamma in most cells. The regulatory elements within the LMP2/TAP1 promoter and the transcription factors that bind these elements have been defined. However, how these transactivators regulate differential TAP1 and LMP2 gene transcription is not known. We have addressed this question by analyzing three human melanoma cell lines with distinct phenotypes of LMP2 and TAP1 expression. Whereas binding of either interferon regulatory factor 1 or Stat1 to the overlapping interferon consensus sequence-2/GAS is sufficient for regulating transcription of the TAP1 gene, binding of both factors is required for LMP2 gene transcription. This conclusion is supported by restoration of LMP2 gene transcription following transfection of wild type Stat1alpha or interferon regulatory factor 1 cDNA into cells lacking these transcription factors. The flexibility in the regulation of the TAP1 gene may reflect its role in maintaining immune surveillance. Furthermore, lack of LMP2 gene transcription in quiescent human cells suggests that LMP2 expression reflects a state of cell activation.