Transcription factors belonging to the basic helix–loop–helix (bHLH) family have been shown to control differentiation of a variety of cell types. Tissue-specific bHLH proteins dimerize preferentially with ubiquitous bHLH proteins to form heterodimers that bind the E-box consensus sequence (CANNTG) in the control regions of target genes. Using the yeast two-hybrid system to screen for tissue-specific bHLH proteins, which dimerize with the ubiquitous bHLH protein E12, we cloned a novel bHLH protein, named Dermo-1. Within its bHLH region, Dermo-1 shares extensive homology with members of the twist family of bHLH proteins, which are expressed in embryonic mesoderm. During mouse embryogenesis, Dermo-1 showed an expression pattern similar to, but distinct from, that of mouse twist. Dermo-1 was expressed at a low level in the sclerotome and dermatome of the somites, and in the limb buds at Day 10.5 post coitum (p.c.), and accumulated predominantly in the dermatome, prevertebrae, and the derivatives of the branchial arches by Day 13.5 p.c. As differentiation of prechondrial cells proceeded, Dermo-1 expression became restricted to the perichondrium. Expression of Dermo-1 increased continuously in the dermis through Day 17.5 p.c. and was also detected in the dermis of neonates, but became downregulated in adult tissues. The Dermo-1 protein bound the E-box consensus sequence in the presence of E12, but transcriptional activity was not detectable. Instead, Dermo-1 repressed transcriptional activity of myogenic bHLH proteins. The expression pattern of Dermo-1 suggests that it functions as a regulator of gene expression in a subset of mesenchymal cell lineages including developing dermis.