The promoter element G(1), critical for alpha-cell-specific expression of the glucagon gene, contains two AT-rich sequences important for transcriptional activity. Pax-6, a paired homeodomain protein previously shown to be required for normal alpha-cell development and to interact with the enhancer element G(3) of the glucagon gene, binds as a monomer to the distal AT-rich site of G(1), However, although the paired domain of Pax-6 is sufficient for interaction with the G(3) element, the paired domain and the homeodomain are required for high affinity binding to G(1), In addition to monomer formation, Pax-6 interacts with Cdx-2/3, a caudal-related homeodomain protein binding to the proximal AT-rich site, to form a heterodimer on G(1), Both proteins are capable of directly interacting in the absence of DNA. In BHK-21 cells, Pax-6 activates glucagon gene transcription both through G(1) and G(3), and heterodimerization with Cdx-2/3 on G(1) leads to more than additive transcriptional activation, In glucagon-producing cells, both G(3) and G(1) are critical for basal transcription, and the Pax-6 and Cdx-2/3 binding sites are required for activation. We conclude that Pax-6 is not only critical for cu-cell development but also for glucagon gene transcription by its independent interaction with the two DNA control elements, G(1) and G(3).