We have cloned and characterized a mouse cDNA coding for LFB3, a DNA binding protein containing an extra-large homeodomain. The first 315 amino acids of LFB3 are highly homologous to the DNA binding domain of LFB1, a regulatory protein involved in the expression of several liver-specific genes. LFB3 is a transcriptional activator which binds to DNA as a dimer and forms heterodimers with LFB1 both in vitro and in vivo. However, LFB3 expression seems not to be directly correlated with the liver-specific phenotype, since it is detected in dedifferentiated hepatoma cell lines which express neither LFB1 nor several liver-specific genes. LFB3 expression starts before that of LFB1 during mouse and rat development, and is strongly increased upon retinoic acid induced differentiation of F9 embryonic carcinoma cells. LFB3 and LFB1 are expressed in the epithelial component of many organs of endodermal and mesodermal origin, suggesting that they may play a more general role associated with the differentiation of specialized epithelia.