We report here the isolation of a novel, highly tissue-restricted member of the ets transcription factor/oncogene family, ESE-1 (for epithelium-specific Ets), which has features distinct from those of any other ets-related factor. ESE-1 contains two putative DNA binding domains an ETS domain, which is unique in that the 5' half shows relatively weak homology to known ets factors, and an A/T hook domain, found in HMG proteins and various other nuclear factors. In contrast to any known ets factors, ESE-1 is expressed exclusively in epithelial cells. ESE-1 expression is induced during terminal differentiation of the epidermis and in a primary human keratinocyte differentiation system. The keratinocyte terminal differentiation marker gene, SPRR2A, is a putative target for ESE-1, since SPRR2A expression during keratinocyte differentiation correlates with induction of ESE-1 expression, and ESE-1 binds with high affinity to and transactivates the ets binding site in the SPRR2A promoter. ESE-1 also binds to and transactivates the enhancer of the Endo A gene, a potential target for ESE-1 in simple epithelia. Due to the important role that other ets factors play in cellular differentiation, ESE-1 is expected to be a critical regulator of epithelial cell differentiation.