The endocrine pancreas consists of several differentiated cell types that are distinguished by their selective expression of peptide hormones such as insulin, glucagon, and somatostatin. Although a number of homeobox-type factors have been proposed as key regulators of individual peptide genes in the pancreas, their cellular distribution and relative abundance remain uncharacterized. Also, their overlapping DNA binding specificities have further obscured the regulatory functions these factors perform during development. In this report we characterize a novel homeobox-type somatostatin transactivating factor termed STF-1, which is uniformly expressed in cells of the endocrine pancreas and small intestine. The 283-amino acid STF-1 protein binds to tissue-specific elements within the somatostatin promoter and stimulates somatostatin gene expression both in vivo and in vitro. Remarkably, STF-1 comprises the predominant tissue-specific element-binding activity in nuclear extracts from somatostatin-producing pancreatic islet cells, suggesting that this protein may have a primary role in regulating peptide hormone expression and specifying endocrine cell lineage in the developing gut.