Giardia lamblia differentiates into infectious cysts to survive outside of the host. It is of interest to identify factors involved in up-regulation of cyst wall proteins (CWPs) during this differentiation. Pax proteins are important regulators of development and cell differentiation in Drosophila and vertebrates. No member of this gene family has been reported to date in yeast, plants, or protozoan parasites. We have identified a pax-like gene (pax1) encoding a putative paired domain in the G. lamblia genome. Epitope-tagged Pax1 localized to nuclei during both vegetative growth and encystation. Recombinant Pax1 specifically bound to the AT-rich initiator elements of the encystation-induced cwp1 to -3 and myb2 genes. Interestingly, overexpression of Pax1 increased cwp1 to -3 and myb2 gene expression and cyst formation. Deletion of the C-terminal paired domain or mutation of the basic amino acids of the paired domain resulted in a decrease of the transactivation function of Pax1. Our results indicate that the Pax family has been conserved during evolution, and Pax1 could up-regulate the key encystation-induced genes to regulate differentiation of the protozoan eukaryote, G. lamblia.