We have isolated a novel basic helix-loop-helix (bHLH) gene homologous to the Drosophila proneural gene atonal, termed ATH-3, from Xenopus and mouse. ATH-3 is expressed in the developing nervous system, with high levels of expression in the brain, retina and cranial ganglions. Injection of ATH-3 RNA into Xenopus embryos dramatically expands the neural tube and induces ectopic neural tissues in the epidermis but inhibits non-neural development. This ATH-3-induced neural hyperplasia does not require cell division, indicating that surrounding cells which are normally non-neural types adopt a neural fate. In a Xenopus animal cap assay, ATH-3 is able to convert ectodermal cells into neurons expressing anterior markers without inducing mesoderm. Interestingly, a single amino acid change from Ser to Asp in the basic region, which mimics phosphorylation of Ser, severely impairs the anterior marker-inducing ability without affecting general neurogenic activities. These results provide evidence that ATH-3 can directly convert non-neural or undetermined cells into a neural fate, and suggest that the Ser residue in the basic region may be critical for the regulation of ATH-3 activity by phosphorylation.