To identify genes regulated by N-myc, subtraction of whole embryo cDNA was carried out between wild type and N-myc-deficient mutant mice. Six cDNA clones were isolated as representing genes expressed higher in the mutant embryos and two as those expressed lower. One of them, Ndr1, coding for 43 kDa cytoplasmic protein was studied in detail. The Ndr1 gene was augmented 20-fold in the mutant embryos at 10.5 days post coitus which is indicative of repression by N-myc. An inverse relationship actually existed between the expression of N-myc and Ndr1 in various developing tissues of the wild type embryos. In the early stage of differentiation of these tissues when N-myc expression was high Ndr1 expression was low or undetectable, and later when N-myc activity diminished Ndr1 expression was augmented concomitantly with the occurrence of terminal differentiation. To establish the direct link between N-myc activity and the Ndr1 regulation, the Ndr1 gene was cloned and analyzed. The Ndr1 promoter activity was down-regulated by N-myc, and more strongly by the combination of N-myc and Max in the cotransfection assay. This repressive effect was mediated by the promoter region within 52 base pairs from the transcription start site but direct binding of N-myc:Max to the promoter sequence was not demonstrated, which is analogous to the cases recently reported for transcriptional repression by c-myc. c-myc also repressed Ndr1 promoter activity similarly to N-myc. The effect of N-myc:Max was sensitive to Trichostatin A, indicating involvement of histone deacetylase activity in repression of the Ndr1 promoter. The strategy we adopted in identifying target genes of a transcription factor should prove widely applicable when mutant animals are available.