The retinoblastoma gene product, pRb, negatively regulates cell proliferation by modulating the activity of the transcription factor E2F1 that controls expression of S‐phase genes. To dissect transcriptional regulation of E2F1 by pRb, we developed a means to control the subcellular localization of pRb by exchanging its constitutive nuclear localization signal (NLS) with an inducible nuclear targeting domain from the glucocorticoid receptor (GR). In co‐transfection experiments in hormone‐free media, pRb delta NLS‐GR sequestered E2F1 in the cytoplasm; addition of steroid hormones induced co‐translocation of pRb delta NLS‐GR and E2F1 to the nucleus. A pRb allele lacking a NLS, pRb delta NLS, also sequestered E2F1 in the cytoplasm. Both nuclear and cytoplasmic pRb delta NLS‐GR repressed transcription from a simple, E2F1‐activated, promoter equally well. pRb delta NLS‐GR exerted differential effects on complex promoters containing an activator and E2F sites that acted as either positive or negative elements. We propose a dual mechanism of transcriptional repression by pRb which allows tight control of E2F1‐responsive genes: a pRb‐E2F1 repressor unit is assembled off DNA to pre‐empt transcriptional activation by E2F1; recruitment of this repressor unit to cognate binding sites on promoters allows silencing of adjacent promoter elements.