HEN1 and HEN2 encode neuron-specific polypeptides that contain the basic helix-loop-helix (bHLH) motif, a protein dimerization and DNA-binding domain common to several known transcription factors. We now describe characteristics of the HEN1 gene product that are consistent with its postulated role as a transcription factor that functions during development of the mammalian nervous system. Thus, transcription of the HEN1 gene is activated upon the induction of neural differentiation in PC12 cells by nerve growth factor. HEN1 encodes a 20-kDa polypeptide (pp20HEN1) that is phosphorylated exclusively at serine residues and forms dimeric bHLH complexes either by self-association or by heterologous interaction with the E2A gene products (E12 or E47). The resultant HEN1/HEN1 homodimers and HEN1/E2A heterodimers bind DNA in a sequence-specific manner. Moreover, a binding site selection procedure revealed that HEN1-HEN1 homodimers preferentially recognize E-box motifs represented by an 18-bp consensus sequence (GGGNCG CAGCTGCGNCCC). The E-box half-site recognized by HEN1 polypeptides (GGGNCGCAG) is distinct from those of other known bHLH proteins, suggesting that HEN1 binds, an regulates the transcription of, a unique subset of target genes during neural development.