Rabbit corneal epithelial cells cultured in the presence of 3T3 feeder cells undergo biochemical differentiation, as evidenced by their initial expression of K5 and K14 keratins characteristic of basal keratinocytes, followed by the subsequent expression of K3 and K12 keratin markers of corneal epithelial differentiation. Previous data established that mutations of an Sp1 site in a DNA element, E, that contains overlapping Sp1 and AP-2 motifs reduce K3 gene promoter activity by 70% in transfection assays. We show here that Sp1 activates while AP-2 represses the K3 promoter. Although undifferentiated corneal epithelial basal cells express equal amounts of Sp1 and AP-2 DNA-binding activities, the differentiated cells down-regulate their Sp1 activity slightly but their AP-2 activity drastically, thus resulting in a six-to sevenfold increase in the Sp1/AP-2 ratio. This change coincides with the activation and suppression of the differentiation-related K3 gene and the basal cell-related K14 keratin gene, respectively. In addition, we show that polyamines, which are present in a high concentration in proliferating basal keratinocytes, can inhibit the binding of Sp1 to its cognate binding motif but not that of AP-2. These results suggest that the relatively low Sp1/AP-2 ratio as well as the polyamine-mediated inhibition of Sp1 binding to the E motif may account, in part, for the suppression of the K3 gene in corneal epithelial basal cells, while the elevated Sp1/AP-2 ratio may be involved in activating the K3 gene in differentiated corneal epithelial cells. Coupled with the previous demonstration that AP-2 activates the K14 gene in basal cells, the switch of the Sp1/AP-2 ratio during corneal epithelial differentiation may play a role in the reciprocal expression of the K3 and K14 genes in the basal and suprabasal cell layers.The rabbit K3 gene encodes a type II keratin which belongs to a family of intermediate filament proteins containing more than 20 members. The expression of these keratin proteins is confined to epithelial cells and, in many cases, is tissue restricted and differentiation dependent (20, 37). For example, we have shown earlier, using monoclonal antibodies against keratins, that cultured rabbit corneal epithelial cells initially express basal cell marker K5 and K14 keratins. Later, when the cells grow exponentially, they turn on the expression of hyperproliferation marker K6 and K16 keratins. Finally, as the confluent cells start to stratify, they turn off K6 and K16 expression and turn on the expression of differentiation marker K3 and K12 keratins (47). Thus, the expression of K3 and K12 keratins is a marker of corneal-type keratinocyte differentiation and is reciprocal to the expression of K5 and K14. The availability of the rabbit corneal epithelial cell culture system and keratin genes therefore offers an attractive system for studying the regulation of cellular differentiation as well as cell-type-specific gene expression.One way to explore the basis of epithelial cell differentiation is to stu...