Pancreas formation is prevented in mice carrying a null mutation in the PDX-1 homeoprotein, demonstrating a key role for this factor in development. PDX-1 can also bind to and activate transcription from cis-acting regulatory sequences in the insulin and somatostatin genes, which are expressed in pancreatic islet beta and delta cells, respectively. In this study, we compared the functional properties of PDX-1 with those of the closely related Xenopus homeoprotein XIHbox8. Analysis of chimeras between PDX-1, XIHbox8, and the DNA-binding domain of the Saccharomyces cerevisiae transcription factor GAL4 revealed that their transactivation domain was contained within the N-terminal region (amino acids 1 to 79). Detailed mutagenesis of this region indicated that transactivation is mediated by three highly conserved sequences, spanning amino acids 13 to 22 (subdomain A), 32 to 38 (subdomain B), and 60 to 73 (subdomain C). These sequences were also required by PDX-1 to synergistically activate insulin enhancer-mediated transcription with another key insulin gene activator, the E2A-encoded basic helix-loop-helix E2-5 and E47 proteins. These results indicated that N-terminal sequences conserved between the mammalian PDX-1 and Xenopus XIHbox8 proteins are important in transcriptional activation. Stable expression of the PDX-1 deltaABC mutant in the insulin- and PDX-1-expressing betaTC3 cell line resulted in a threefold reduction in the rate of endogenous insulin gene transcription. Strikingly, the level of the endogenous PDX-1 protein was reduced to very low levels in these cells. These results suggest that PDX-1 is not absolutely essential for insulin gene expression in betaTC3 cells. We discuss the possible significance of these findings for insulin gene transcription in islet beta cells.