Hepatitis B virus (HBV) has a unique fourth open reading frame coding for a 16.5-kDa protein known as hepatitis B virus X protein (HBX). The importance of HBX in the life cycle of HBV has been well established, but the underlying molecular function of HBX remains controversial. We previously identified a proteasome subunit PSMA7 that interacts specifically with HBX in the Saccharomyces cerevisiae two-hybrid system. Here we demonstrate that PSMC1, an ATPase-like subunit of the 19 S proteasome component, also interacts with HBX and PSMA7. Analysis of the interacting domains among PSMA7, PSMC1, and HBX by deletion and site-directed mutagenesis suggested a mutually competitive structural relationship among these polypeptides. The competitive nature of these interactions is further demonstrated using a modified yeast two-hybrid dissociator system. The crucial HBX sequences involved in interaction with PSMA7 and PSMC1 are important for its function as a transcriptional coactivator. HBX, while functioning as a coactivator of AP-1 and acidic activator VP-16 in mammalian cells, had no effect on the transactivation function of their functional orthologs GCN4 and Gal4 in yeast. Overexpression of PSMC1 seemed to suppress the expression of various reporters in mammalian cells; this effect, however, was overcome by coexpression of HBX. In addition, HBX expression inhibited the cellular turnover of c-Jun and ubiquitin-Arg-beta-galactosidase, two well known substrates of the ubiquitin-proteasome pathway. Thus, interaction of HBX with the proteasome complex in metazoan cells may underlie the functional basis of proteasome as a cellular target of HBX.