Differentiation enhancing factor (DEF) is a 29 kDa protein expressed in murine erythroleukemia (MEL) cells and active in promoting a significant increase in the rate of hexamethylenebisacetamide induced differentiation of these cells. The factor was recently shown to possess an amino acid sequence identical to that reported for one of the HMG1 proteins, designated as 'amphoterin' on the basis of its highly dipolar sequence. In the present study, we have expressed DEF cDNA in an E. coli strain and found that the recombinant protein has functional properties identical to those observed with native DEF. Furthermore, we demonstrate that, following MEL cell stimulation with the chemical inducer, DEF is secreted in large amounts in the extracellular medium. In fact, the N-terminal sequence and the partial amino acid sequence of tryptic peptides from the secreted protein correspond to those of DEF isolated from the soluble fraction of resting MEL cells. These results are indicative for an extracellular localization as the site of action of DEF and suggest a novel function for proteins belonging to the HMG1 family. Finally, the early decay of DEF mRNA, in chemical induced MEL cells, support the hypothesis that the involvement of the enhancing factor occurs and is completed in the early phases of cell differentiation.