The promoters of both RNA polymerase II- and RNA polymerase III-transcribed small nuclear RNA (snRNA) genes contain an essential and highly conserved proximal sequence element (PSE) approximately 55 bp upstream from the transcription start site. In addition, the upstream enhancers of all snRNA genes contain binding sites for octamer-binding transcription factors (Octs), and functional studies have indicated that the PSE and octamer elements work cooperatively. The present study has identified and characterized a novel transcription factor (designated PTF) which specifically binds to the PSE sequence of both RNA polymerase II- and RNA polymerase III-transcribed snRNA genes. PTF binding is markedly potentiated by Oct binding to an adjacent octamer site. This potentiation is effected by Oct-1, Oct-2, or the conserved POU domain of these factors. In agreement with these results and despite the independent binding of Octs to the promoter, PTF and Oct-1 enhance transcription from the 7SK promoter in an interdependent manner. Moreover, the POU domain of Oct-1 is sufficient for significant in vitro activity in the presence of PTF. These results suggest that essential activation domains reside in PTF and that the potentiation of PTF binding by Octs plays a key role in the function of octamer-containing snRNA gene enhancers.