The Wilms' tumour suppressor WT1 (Wilms' tumour 1) is a transcriptional regulator that plays a central role in organogenesis, and is mutated or aberrantly expressed in several childhood and adult malignancies. We previously identified BASP1 (brain acid-soluble protein 1) as a WT1 cofactor that suppresses the transcriptional activation function of WT1. In the present study we have analysed the dynamic between WT1 and BASP1 in the regulation of gene expression in myelogenous leukaemia K562 cells. Our findings reveal that BASP1 is a significant regulator of WT1 that is recruited to WT1-binding sites and suppresses WT1-mediated transcriptional activation at several WT1 target genes. We find that WT1 and BASP1 can divert the differentiation programme of K562 cells to a non-blood cell type following induction by the phorbol ester PMA. WT1 and BASP1 co-operate to induce the differentiation of K562 cells to a neuronal-like morphology that exhibits extensive arborization, and the expression of several genes involved in neurite outgrowth and synapse formation. Functional analysis revealed the relevance of the transcriptional reprogramming and morphological changes, in that the cells elicited a response to the neurotransmitter ATP. Taken together, the results of the present study reveal that WT1 and BASP1 can divert the lineage potential of an established blood cell line towards a cell with neuronal characteristics.