The ubiquitous transcription factor Oct-1 stimulates basal transcription from the mouse mammary tumor virus (MMTV) promoter by binding to octamer-related sequences present in the proviral long terminal repeat. The mechanism of transcriptional activation by Oct-1 was investigated using in vitro transcription assays with a HeLa cell nuclear extract depleted of endogenous Oct-1. Oct-1-mediated transcriptional activation could be reconstituted by addition of bacterially expressed recombinant Oct-1 protein. The stimulatory effect of Oct-1 was observed only when the protein was present during formation of transcription preinitiation complexes and not when added to fully assembled complexes. Furthermore, assembled MMTV preinitiation complexes were resistant to inhibition by a competitor oligonucleotide containing MMTV octamer-related elements that could eliminate Oct-1-mediated stimulation when present during the assembly process. The time course of transcription complex assembly revealed that Oct-1 increases the number of templates on which functional transcription complexes form. Finally, experiments designed to exploit the sensitivity of discrete steps in transcription complex assembly to the anionic detergent Sarkosyl demonstrated that Oct-1 must be present during formation of an early intermediate in the assembly process.