The zinc finger transcription factor, Krüppel-like factor 4 (KLF4), regulates numerous biological processes, including proliferation, differentiation, and embryonic stem cell self-renewal. Although the DNA sequence to which KLF4 binds is established, the mechanism by which KLF4 controls transcription is not well defined. Small ubiquitin-related modifier (SUMO) is an important regulator of transcription. Here we show that KLF4 is both SUMOylated at a single lysine residue and physically interacts with SUMO-1 in a region that matches an acidic and hydrophobic residue-rich SUMO-interacting motif (SIM) consensus. The SIM in KLF4 is required for transactivation of target promoters in a SUMO-1-dependent manner. Mutation of either the acidic or hydrophobic residues in the SIM significantly impairs the ability of KLF4 to interact with SUMO-1, activate transcription, and inhibit cell proliferation. Our study provides direct evidence that SIM in KLF4 functions as a transcriptional activation domain. A survey of transcription factor sequences reveals that established transactivation domains of many transcription factors contain sequences highly related to SIM. These results, therefore, illustrate a novel mechanism by which SUMO interaction modulates the activity of transcription factors.