The human embryonal carcinoma (EC) cell line NEC14 can be induced to differentiate morphologically by the addition of 10(-2) M N,N'-hexamethylene-bis-acetamide (HMBA). The N-myc gene is expressed at a high level in the undifferentiated cells, but the level decreased steeply after 12-24 h HMBA treatment, returning to its original level after 48 h. The alteration in the N-myc level was well correlated with the formation of complexes with the E2F motif in the N-myc promoter region, and no complex was formed with cell extracts prepared from cells treated with HMBA for 12-24 h. The absence of E2F complexes during this period was caused by an inhibitor generated by a phosphatase reaction. Treatment of the 12-h extract with a cyclic AMP-dependent protein kinase resulted in the formation of E2F complexes, and treatment of the undifferentiated (0 h) and 48-h extracts with a calf intestinal phosphatase abolished complex formation completely. An inhibitor generated by the 0-h extract after treatment with a phosphatase inhibited E2F complex formation by the untreated 0-h extract in the presence of phosphatase inhibitors, okadaic acid and sodium vanadate. One of the two E2F complexes in the undifferentiated cells contained cyclin A, but the complex with similar mobility, formed after the transient decrease in the N-myc level, did not.