The host range of polyoma virus is dependent upon the activity of its enhancer, which is inactive in undifferentiated embryonal carcinoma cells, such as F9 cells, and is active after their differentiation. We show here that the activity of the alpha domain of the polyoma virus enhancer displays a similar cell-specificity and inducibility as does the whole enhancer. We present evidence to show that its activity is determined by the balance between the activities of two factors, PEA2, a labile repressor, and PEA1, an inducible positive factor that we have characterized previously. Changes in repressor activity help account for the increase in alpha-domain activity after differentiation of F9 cells. These results suggest that PEA2 is crucial in the regulation of viral gene expression and perhaps more generally in the control of gene expression during differentiation.