Alveolar type I epithelial cells form the major surface for gas exchange in the lung. To explore how type I cells differ in gene expression from their progenitor alveolar type II cells, we analyzed transcriptional regulation of T1alpha, a gene expressed by adult type I but not type II cells. In vivo developmental patterns of T1alpha expression in lung and brain suggest active gene regulation. We cloned and sequenced 1.25 kilobase pairs of the T1alpha promoter that can drive reporter expression in lung epithelial cell lines. Deletion analyses identified regions important for lung cell expression. The base pair (bp) -100 to -170 fragment conferred differential regulation in lung epithelial cells compared with fibroblasts. Sequence alignment of this fragment with type II-specific surfactant protein B and C promoters shows similar consensus elements arranged in a different order. Gel retardation studies with alveolar epithelial cell line nuclear extracts, thyroid transcription factor I (TTF-1) homeodomain, hepatic nuclear factor (HNF)-3beta, or Sp1 proteins, and supershift assays were used to characterize TTF-1, HNF-3 (TGT3), and Sp1/Sp3 binding sites. The TGT3 site binds factors with binding properties similar to HNF-3/Fkh (hepatic nuclear factor-3/forkhead) proteins but different from HNF-3alpha or HNF-3beta. Co-transfection with a TTF-1 expression vector moderately transactivated the -170 bp-reporter construct. Mutational analysis of these three binding sites showed reduced transcriptional activity of the -170 bp promoter. Therefore, several regulatory sequences involved in type II cell gene regulation are also present in the T1alpha promoter, suggesting that genes of the peripheral lung epithelium may be regulated by similar factors.