Previous work has shown that melanoma cell lines express a distinct octamer binding protein. Given the role of octamer-binding proteins in cell differentiation and development, the role this factor is a key issue in understanding melanocyte differentiation and transformation. Using a proteolytic clipping assay, we show that the melanoma-specific octamer factor is Brn-2/N-Oct3, a POU domain protein previously known to be expressed in adult brain and in the developing nervous system. N-Oct3 mRNA was detected in a range of human melanoma cell lines and was around 10-fold elevated compared to normal human melanocytes while mRNA for Brn-2 was also detected in a mouse melanoblast cell line. Expression of Brn-2/N-Oct3, in melanoma cells in cotransfection assays activated the expression of the MHC class II DR alpha promoter but repressed the activity of the melanocyte-specific tyrosinase promoter. Repression correlated with Brn-2/N-Oct3 binding in a mutually exclusive fashion with basic-helix-loop-helix-leucine-zipper (bHLH-LZ) transcription factor USF in vitro and with Brn-2 expression preventing activation of the tyrosinase promoter by the bHLH-LZ factor Microphthalmia in vivo. The potential role of Brn-2/N-Oct3 in melanocyte differentiation and gene expression is discussed.