Using degenerate PCR cloning we have identified a novel basic helix-loop-helix (bHLH) transcription factor, BETA3, from a hamster insulin tumor (HIT) cell cDNA library. Sequence analysis revealed that this factor belongs to the class B bHLH family and has the highest degree of homology with another bHLH transcription factor recently isolated in our laboratory, BETA2 (neuroD) (J. E. Lee, S. M. Hollenberg, L. Snider, D. L. Turner, N. Lipnick, and H. Weintraub, Science 268:836–844, 1995; F. J. Naya, C. M. M. Stellrecht, and M.-J. Tsai, Genes Dev. 8:1009–1019, 1995). BETA2 is a brain- and pancreatic-islet-specific bHLH transcription factor and is largely responsible for the tissue-specific expression of the insulin gene. BETA3 was found to be tissue restricted, with the highest levels of expression in HIT, lung, kidney, and brain cells. Surprisingly, despite the homology between BETA2 and BETA3 and its intact basic region, BETA3 is unable to bind the insulin E box in bandshift analysis as a homodimer or as a heterodimer with the class A bHLH factors E12, E47, or BETA1. Instead, BETA3 inhibited both the E47 homodimer and the E47/BETA2 heterodimer binding to the insulin E box. In addition, BETA3 greatly repressed the BETA2/E47 induction of the insulin enhancer in HIT cells as well as the MyoD/E47 induction of a muscle-specific E box in the myoblast cell line C2C12. In contrast, expression of BETA3 had no significant effect on the GAL4-VP16 transcriptional activity. Immuno-precipitation analysis demonstrates that the mechanism of repression is via direct protein-protein interaction, presumably by heterodimerization between BETA3 and class A bHLH factors.