E2F-1, a major cellular transcription factor, plays a pivotal role in regulating the cell cycle. The activity of E2F-1 is negatively regulated by its interaction with retinoblastoma protein (pRB), and disruption of the pRB-E2F-1 complex, a hallmark of cellular transformation by DNA tumor viruses, leads to cell proliferation. Adeno-associated virus-2 (AAV) is known to have onco-suppressive properties against DNA tumor viruses. Here we provide, for the first time, the molecular basis for antioncogenic activity of AAV. Rep78, a major regulatory protein of AAV, interacts at the protein level with E2F-1 and stabilizes the pRB-E2F-1 complex. At the DNA level, Rep78 binds to a putative site on the E2F-1 promoter and down-regulates the adenovirus-induced E2F-1 transcription. This dual level of Rep78 activity leads to decreased cellular levels of free E2F-1, leading to its onco-suppressive properties.