Genital abnormalities associated with Wilms' tumors in the WAGR and Denys-Drash syndromes and the failure of the gonads to develop in Wilms' tumor gene (wt1)-homozygous mutant mice suggest that WT1 may also function in sexual development. To elucidate the mechanism of action of WT1 in embryonal sexual development, we examined how the four isoforms of WT1 regulate the transcription of several genes involved in sexual development using cotransfection assays. SRY (the sex-determining region of the Y chromosome) promoter was strongly activated by the WT1 isoforms without the KTS tripeptide, WT1(-)KTS, but was not activated by the WT1 isoforms with the KTS tripeptide, WT1(+)KTS, in all cells tested. The second alternative splicing site, which inserts the tripeptide KTS, alters the DNA binding capability. The MüAdullerian-inhibiting substance (MIS) promoter was strongly repressed by WT1(-)KTS isoforms and more weakly repressed by the WT1(+)KTS isoforms in Sertoli cells but not in HeLa cells. The androgen receptor (AR) promoter was strongly repressed by the WT1(-)KTS isoforms in all cells tested and was more weakly or not repressed by WT1(+)KTS isoforms depending on cell lines. Electrophoretic mobility shift assays showed strong binding by recombinant WT1(-)KTS protein and weaker or no binding by the WT1(+)KTS protein to DNA probes containing WT1 binding sites from these three promoters. The results of these functional and binding assays suggest that WT1 has an important role in regulation of genes involved in embryonal sexual development and that WT1 can function as a transcriptional activator.