Telomerase, the enzyme which maintains the ends of linear chromosomes in eukaryotic cells is found in murine embryonic stem cells; however, its activity is downregulated during in vitro differentiation. Previous work has indicated that this is due to the transcriptional downregulation of murine reverse transcriptase unit (mTert) of telomerase. To investigate the factors that cause the transcriptional repression of mTert we defined a 300 bp region which is essential for its transcription and performed site directed mutagenesis and electrophoretic mobility shift assays. This analysis indicated that Sp1, Sp3 and c-Myc bind to the GC-boxes and E-boxes, respectively, within the promoter and help activate the transcription of mTert gene. We also identified a novel binding sequence, found repeated within the mTert core region, which when mutated caused increased mTert expression. Yeast one hybrid screening combined with electrophoretic mobility shift assays indicated that the nuclear protein Zap3 binds to this site and its overexpression leads to the downregulation of mTert during differentiation. This suggests that regulation of mTert transcription is a complex process which depends on a quantitative balance between transcription factors that cause activation or repression of this gene. Overexpression of Zap3 in murine embryonic stem cells results in reduction in telomerase activity and telomere length as well as reduced proliferative capacity and limited ability to contribute to the development of haematopoietic cells upon differentiation.