In hydra, head activator (HA) acts as positive signal for nerve-cell determination and differentiation. For both events, HA uses cAMP as the second messenger. Evidence is presented that the cAMP agonist, Sp-cAMPS, is able to mimick the effect of HA on nerve-cell determination and differentiation and that it is blocked by the antagonist Rp-cAMP. An adenylyl cyclase associated protein, CAP, appears to be involved as mediator for transducing the signal from the transmembrane HA receptor to the cAMP system. A cDNA coding for hydra CAP was isolated from the multiheaded mutant of Chlorohydra viridissima. The hydra CAP shows extensive homology with the yeast and, more so, mammalian CAPs. In hydra, CAP mRNA is expressed abundantly in interstitial and epithelial cells. The effect of HA, but not of cAMP, on nerve-cell differentiation was inhibited by pretreatment of hydra with a cap antisense oligonucleotide, suggesting a role for CAP as mediator in the signal transduction cascade between HA and cAMP.