The insulin gene is one of the best paradigms of tissue-specific gene expression. It is developmentally regulated and is expressed exclusively in the pancreatic 13-cell. This restricted expression is directed by a tissue-specific enhancer, within the promoter, which contains an E-box sequence. The insulin E-box binds an islet-specific protein complex, termed 3al. E-boxes bind proteins belonging to the basic helix-loop-helix (bHLH) family of transcription factors. The bHLH proteins function as potent transcriptional activators of tissue-specific genes by forming heterodimers between ubiquitous and cell-restricted family members. In addition, the cell-restricted bHLH members play an important role in specifying cell fate. To isolate the tissue-specific bHLH factor controlling insulin gene expression and study its role in islet cell differentiation, a modified yeast two-hybrid system was utilized to clone a novel bHLH factor, BETA2 ([f-cell _E-box trans-activator 2_), from a hamster insulin tumor (HIT) cell cDNA library. Northern analysis demonstrates that high-level expression of the BETA2 gene is restricted to pancreatic o~-and [~-cell lines. As expected of tissue-specific bHLH members, BETA2 binds to the insulin E-box sequence with high affinity as a heterodimer with the ubiquitous bHLH factor E47. More importantly, antibody supershift experiments clearly show that BETA2 is a component of the native insulin E-box-binding complex. Transient transfection assays demonstrate that the BETA2/E47 heterodimer synergistically interacts with a neighboring 13-cell-specific complex to activate an insulin enhancer. In contrast, other bHLH factors such as MyoD and E47, which can bind to the insulin E-box with high affinity, fail to do so. Thus, a unique, cooperative interaction is the basis by which the insulin E-box enhancer discriminates between various bHLH factors to achieve tissue-specific activation of the insulin gene.