Epithelial cell differentiation is tightly controlled by distinct sets of transcription factors that regulate the expression of stage-specific genes. We recently isolated the first epithelium-specific Ets transcription factor (ESE-1). Here we describe the characterization of ESE-2, a second epithelium-restricted ESE-1-related Ets factor. Like ESE-1, ESE-2 is induced during keratinocyte differentiation. However, whereas ESE-1 is expressed in the majority of epithelial cell types, ESE-2 expression is restricted to differentiated keratinocytes and glandular epithelium such as salivary gland, prostate, mammary gland, and kidney. In contrast to ESE-1, full-length ESE-2 binds poorly to DNA due to the presence of a negative regulatory domain at the amino terminus. Furthermore, although ESE-1 and the amino-terminally deleted ESE-2 bind with similar affinity to the canonical E74 Ets site, ESE-2 and ESE-1 differ strikingly in their relative affinity toward binding sites in the c-MET and PSMA promoters. Similarly, ESE-1 and ESE-2 drastically differ in their ability to transactivate epitheliumspecific promoters. Thus, ESE-2, but not ESE-1, transactivates the parotid gland-specific PSP promoter and the prostate-specific PSA promoter. In contrast, ESE-1 transactivates the keratinocyte-specific SPRR2A promoter Ets site and the prostate-specific PSMA promoter significantly better than ESE-2. Our results demonstrate the existence of a unique class of related epitheliumspecific Ets factors with distinct functions in epithelial cell gene regulation.Normal epithelial cell development, proliferation, and differentiation are induced by mesenchymal-epithelial interactions and involve cell-cell interactions, extracellular matrix, and soluble growth and differentiation factors. These interactions trigger the activation or expression of a distinct set of transcription factors leading to a specific pattern of gene expression along a tightly controlled pathway. Abnormalities in this process due to deregulated gene expression can lead to the development of benign adenomas or malignant carcinomas that make up the majority of solid tumors. In order to understand tumor development, it is therefore critical to understand normal epithelial cell differentiation and proliferation. Whereas rapid progress in understanding immune system development and gene regulation has led to the discovery and characterization of a whole set of genes involved in leukemia and lymphoma development, relatively little is known about epithelial cell differentiation and organ development and the mechanisms involved in solid tumor formation. Most of the genes involved in chromosomal translocations in leukemias and lymphomas encode transcription factors that under normal physiological conditions coordinate the correct spatial and temporal expression of genes (1). We therefore postulate that similar mechanisms of oncogenesis play a role in epithelium-derived tumors as well. It is thus surprising that many aspects of epithelium-specific gene expression have not been explore...