Basic-helix-loop-helix transcription factors regulate neurogenesis and neuronal differentiation by as yet unknown mechanisms. We show that an embryonic neuronal-specific basic-helix-loop-helix protein, HEN1 (also known as NSCL1 or NHLH), interacts with 'LIM only' proteins. Examination of the expression patterns of XHEN1 and XLMO-3, the Xenopus homologues of these human genes, reveals extensive overlap during early neurogenesis: at the onset of gastrulation on the dorsal side of the blastopore lip and, subsequently, in the prospective neural plate. Binding of XLMO-3 increases the transcriptional activity of XHEN1 in vivo. Co-expression of these two genes in Xenopus embryos induces a cascade of expression of neuronal-specific basic-helix-loop-helix proteins that leads to neuronal differentiation. We propose that XHEN1, in concert with XLMO-3, is a critical regulator of neurogenesis.