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 epithelium-specific 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 epithelium-specific Ets factors with distinct functions in epithelial cell gene regulation.