Following induction and activation of the early growth response (Egr)-1 transcription factor in human chondrocytes, interleukin-1β (IL-1β) suppresses the expression of the type II collagen gene (COL2A1), associated with induction of Egr-1 binding activity in nuclear extracts. The COL2A1 proximal promoter contains overlapping binding sites for Egr-1 and Sp1 family members at -119/-112 bp and -81/-74 bp. Mutations that block binding of Sp1 and Sp3 to either site markedly reduce constitutive expression of the core promoter. IL-1β-induced Egr-1 binds strongly to the -119/-112 bp site, and mutations that block Egr-1 binding prevent inhibition by IL-1β. Cotransfection with pCMV-Egr1 potentiates the inhibition of COL2A1 promoter activity by IL-1β, whereas overexpression of dominant-negative Egr-1 mutant, Wilm's tumor-1 (WT1)/Egr1, Sp1, or Sp3 reverses the inhibition by IL-1β. Cotransfection of pGL2-COL2/ Gal4, in which we substituted the critical residue for Egr-1 binding with a Gal4 binding domain and a pCMV-Gal4-Egr1 chimera permits an inhibitory response to IL-1β that is reversed by overexpression of Gal4-CBP. Our results indicate that IL-1β-induced activation of Egr-1 binding is required for inhibition of COL2A1 proximal promoter activity and suggest that Egr-1 acts as a repressor of a constitutively expressed collagen gene by preventing interactions between Sp1 and the general transcriptional machinery.