Many of the biological and toxic effects of 2,3,7,8-tetrachlorodibenzo-p-dioxin (TCDD, dioxin), a highly toxic environmental contaminant, are mediated by a soluble intracellular protein (the Ah receptor (AhR)). Following a poorly defined process of transformation, during which the TCDD:AhR complex acquires the ability to bind to DNA with high affinity, TCDD:AhR complexes activate gene transcription by binding to dioxin responsive enhancers (DREs) adjacent to the responsive gene. Here we have utilized gel retardation analysis to study the interaction of rat hepatic cytosolic TCDD:AhR complexes, transformed in vitro, with dioxin responsive enhancer DNA. Cytosol contains a protein(s) that binds to the DRE in a TCDD-inducible, sequence-specific, time- and temperature-dependent manner and exhibits AhR ligand binding specificity. These results imply that this inducible protein-DNA complex represents the binding of liganded:AhR complex to the DRE. The TCDD:AhR complex bound to the DRE with an equilibrium dissociation constant of 1.2 +/- 0.1 nM, an affinity at least 3800-fold stronger than that for binding to nonspecific DNA. Assuming one DNA binding site per AhR molecule, the total concentration of transformed AhR in these studies was approximately 56.1 +/- 6.6 fmol/mg protein (representing transformation of 45% of the total amount of AhR present in the same cytosolic preparations). Inhibition of AhR transformation, but not ligand or DNA binding, by EDTA and EGTA suggests that a chelatable divalent cation(s) may play a critical role in the transformation process.