Hormone induction of growth-arrested preadipocytes triggers mitotic clonal expansion followed by expression of CCAAT/enhancer- binding protein (C/EBP)α and differentiation into adipocytes. The order of these events is critical because C/EBPα is antimitotic and its expression prematurely would block the mitotic clonal expansion required for differentiation. C/EBPβ, a transcriptional activator of the C/EBPα gene, is expressed early in the differentiation program, but lacks DNA-binding activity and fails to localize to centromeres until preadipocytes traverse the G1-S checkpoint of mitotic clonal expansion. Evidence is presented that dominantnegative CHOP-10 expressed by growth-arrested preadipocytes transiently sequesters C/EBPβ by heterodimerization. As preadipocytes reach S phase, CHOP-10 is down-regulated, apparently releasing C/EBPβ from inhibitory constraint and allowing transactivation of the C/EBPα gene. In support of these findings, up-regulation of CHOP-10 with the protease inhibitor N-acetyl-Leu-Leu-norleucinal prevents activation of C/EBPβ, expression of C/EBPα, and adipogenesis.