The ESE (epithelium-specific Ets) subfamily of Ets transcription factors plays an important role in regulating gene expression in a variety of epithelial cell types. Although ESE proteins have been shown to bind to regulatory elements of some epithelial genes, the optimal DNA-binding sequence has not been experimentally ascertained for any member of the ESE subfamily of transcription factors. This has made the identification and validation of their targets difficult. We are studying ESE-2 (Elf5), which is highly expressed in epithelial cells of many tissues including skin keratinocytes. Here, we identify the preferred DNA-binding site of ESE-2 by performing CASTing (cyclic amplification and selection of targets) experiments. Our analysis shows that the optimal ESE-2 consensus motif consists of a GGA core and an AT-rich 5'- and 3'-flanking sequences. Mutational and competition experiments demonstrate that the flanking sequences that confer high DNA-binding affinity for ESE-2 show considerable differences from the known consensus DNA-binding sites of other Ets proteins, thus reinforcing the idea that the flanking sequences may impart recognition specificity for Ets proteins. In addition, we have identified a novel isoform of murine ESE-2, ESE-2L, that is generated by use of a hitherto unreported new exon and an alternate promoter. Interestingly, transient transfection assays with an optimal ESE-2 responsive reporter show that both ESE-2 and ESE-2L are weak transactivators. However, similar studies utilizing GAL4 chimaeras of ESE-2 demonstrate that while the DNA-binding ETS (E twenty-six) domain functions as a repressor, the PNT (pointed domain) of ESE-2 can act as a potent transcriptional activation domain. This novel transactivating property of PNT is also shared by ESE-3, another ESE family member. Identification of the ESE-2 consensus site and characterization of the transcriptional activation properties of ESE-2 shed new light on its potential as a regulator of target genes.