Tumor-specific activation of the TAL1 gene is the most common genetic defect associated with T-cell acute lymphoblastic leukemia. The TAL1 gene products possess a basic helix-loop-helix (bHLH) motif, a protein-dimerization and DNA-binding domain found in several transcription factors. TAL1 polypeptides interact, in vitro and in vivo, with class A bHLH proteins (e.g., E47) to form heterodimers with sequence-specific DNA-binding activity. In this study, we show that TAL1 can regulate the transcription of an artificial reporter gene that contains binding sites for bHLH heterodimers involving TAL1. Transcription of the reporter is strongly induced by E47-E47 homodimers and moderately induced by TAL1-E47 heterodimers. Thus, in a cellular environment that allows formation of E47-E47 homodimers (e.g., in the absence of Id regulatory proteins) TAL1 can repress transcription by recruiting E47 into bHLH complexes with less transcriptional activity (i.e., TAL1-E47 heterodimers). However, in other settings TAL1 can activate transcription because TAL1-E47 heterodimers are more resistant to negative regulation by Id proteins. Hence, TAL1 can potentially regulate transcription in either a positive or negative fashion.