During fetal development, paired/homeodomain transcription factor Pax4 controls the formation of the insulin-producing beta cells and the somatostatin-producing delta cells in the islets of Langerhans in the pancreas. Targeting of Pax4 expression to the islet lineage in the fetal pancreas depends on a short sequence located approximately 2 kb upstream of the transcription initiation site of the PAX4 gene. This short sequence contains binding sites for homeodomain transcription factors PDX1 and hepatic nuclear factor (HNF)1, nuclear receptor HNF4alpha, and basic helix-loop-helix factor Neurogenin3. In the current study we demonstrate that the HNF1alpha and Neurogenin3 binding sites are critical for activity of the region through synergy between the two proteins. Synergy involves a physical interaction between the factors and requires the activation domains of both factors. Furthermore, exogenous expression of Neurogenin3 is sufficient to induce expression of the endogenous pax4 gene in the mouse pancreatic ductal cell line mPAC, which already expresses HNF1alpha, whereas expression of both Neurogenin3 and HNF1alpha are necessary to activate the pax4 gene in the fibroblast cell line NIH3T3. These data demonstrate how Neurogenin3 and HNF1alpha activate the pax4 gene during the cascade of gene expression events that control pancreatic endocrine cell development.