The key to the two-hybrid screen is that in most eukaryotic transcription factors, the activating and binding domains are modular and can function in proximity to each other without direct binding. This means that even though the transcription factor is split into two fragments, it can still activate transcription when the two fragments are indirectly connected.
The most common screening approach is the yeast two-hybrid assay. In this approach the researcher knows where each prey is located on the used medium (agar plates). Millions of potential interactions in several organisms have been screened in the latest decade using  high-throughput screening systems (often using robots) and over thousands of interactions have been detected and categorized in databases as [https://thebiogrid.org BioGRID]. This system often utilizes a genetically engineered strain of yeast in which the biosynthesis of certain nutrients (usually amino acids or nucleic acids) is lacking. When grown on media that lacks these nutrients, the yeast fail to survive. This mutant yeast strain can be made to incorporate foreign DNA in the form of plasmids. In yeast two-hybrid screening, separate bait and prey plasmids are simultaneously introduced into the mutant yeast strain or a mating strategy is used to get both plasmids in one host cell.
The second high-throughput approach is the library screening approach. In this set up the bait and prey harboring cells are mated in a random order. After mating and selecting surviving cells on selective medium the scientist will sequence the isolated plasmids to see which prey (DNA sequence) is interacting with the used bait. This approach has a lower rate of reproducibility and tends to yield higher amounts of false positives compared to the matrix approach.
Plasmids are engineered to produce a protein product in which the DNA-binding domain (BD) fragment is fused onto a protein while another plasmid is engineered to produce a protein product in which the activation domain (AD) fragment is fused onto another protein. The protein fused to the BD may be referred to as the bait protein, and is typically a known protein the investigator is using to identify new binding partners. The protein fused to the AD may be referred to as the prey protein and can be either a single known protein or a library of known or unknown proteins. In this context, a library may consist of a collection of protein-encoding sequences that represent all the proteins expressed in a particular organism or tissue, or may be generated by synthesising random DNA sequences. Regardless of the source, they are subsequently incorporated into the protein-encoding sequence of a plasmid, which is then transfected into the cells chosen for the screening method. This technique, when using a library, assumes that each cell is transfected with no more than a single plasmid and that, therefore, each cell ultimately expresses no more than a single member from the protein library.
If the bait and prey proteins interact (i.e., bind), then the AD and BD of the transcription factor are indirectly connected, bringing the AD in proximity to the transcription start site and transcription of reporter gene(s) can occur. If the two proteins do not interact, there is no transcription of the reporter gene. In this way, a successful interaction between the fused protein is linked to a change in the cell phenotype.
The challenge of separating cells that express proteins that happen to interact with their counterpart fusion proteins from those that do not, is addressed in the following section.