The microphthalmia transcription factor (MITF) regulates gene expression during differentiation of several distinct cell types, including osteoclasts. A structure/function analysis was performed to determine whether transcription activation domains were important for MITF action in osteoclasts. In addition to a previously characterized acidic activation necessary for melanocyte differentiation, the analysis defined a second potential activation domain located between amino acids 140 and 185. This second domain is required for MITF transactivation of two probable targets, the E-cadherin promoter and the tartrate-resistant acid phosphatase promoter, in transient transfection assays. An intact MITF gene rescued differentiation when introduced into osteoclasts derived from mi/mi mice using a retrovirus vector. In parallel experiments, an MITF gene lacking the acidic-activation domain rescued differentiation twofold less efficiently than wild type, and a gene lacking the region between amino acid residues 140 and 185 rescued differentiation tenfold less efficiently than wild type. The results indicate that the N-terminal region of MITF is necessary for activation of gene expression in osteoclasts and provides one mechanism by which this factor regulates distinct target genes in different cell types.