Several different transcription factors, including estrogen receptor, progesterone receptor, and ETS family members, have been implicated in human breast cancer, indicating that transcription factor-induced alterations in gene expression underlie mammary cell transformation. ESE-1 is an epithelium-specific ETS transcription factor that contains two distinguishing domains, a serine- and aspartic acid-rich (SAR) domain and an AT hook domain. ESE-1 is abundantly expressed in human breast cancer and trans-activates epithelium-specific gene promoters in transient transfection assays. While it has been presumed that ETS factors transform mammary epithelial cells via their nuclear transcriptional functions, here we show (i) that ESE-1 protein is cytoplasmic in human breast cancer cells; (ii) that stably expressed green fluorescent protein-ESE-1 transforms MCF-12A human mammary epithelial cells; and (iii) that the ESE-1 SAR domain, acting in the cytoplasm, is necessary and sufficient to mediate this transformation. Deletion of transcriptional regulatory or nuclear localization domains does not impair ESE-1-mediated transformation, whereas fusing the simian virus 40 T-antigen nuclear localization signal to various ESE-1 constructs, including the SAR domain alone, inhibits their transforming capacity. Finally, we show that the nuclear localization of ESE-1 protein induces apoptosis in nontransformed mammary epithelial cells via a transcription-dependent mechanism. Together, our studies reveal two distinct ESE-1 functions, apoptosis and transformation, where the ESE-1 transcription activation domain contributes to apoptosis and the SAR domain mediates transformation via a novel nonnuclear, nontranscriptional mechanism. These studies not only describe a unique ETS factor transformation mechanism but also establish a new paradigm for cell transformation in general.