The differentiation of the ND7 neuronal cell line to a nondividing phenotype bearing numerous neurite processes is accompanied by a dramatic increase in the levels of the activating POU family transcription factor Brn-3a and a corresponding fall in the levels of the closely related inhibitory factor Brn-3b. We have previously shown that the artificial overexpression of Brn-3a in these cells can induce neurite outgrowth and the activation of genes encoding synaptic vesicle proteins in the absence of a differentiation-inducing stimulus. Here we show that overexpression of Brn-3b can reduce process outgrowth and synaptic vesicle gene expression following exposure to a stimulus which would normally induce differentiation. These inhibitory effects are abolished by altering a single amino acid in the POU homeodomain of Brn-3b to its equivalent in Brn-3a. The converse mutation in Brn-3a allows it to inhibit process outgrowth in response to a differentiation-inducing stimulus. Hence a single amino acid difference results in these closely related factors having opposite effects and allows the balance between them to regulate differentiation.