MITF (microphthalmia-associated transcription factor) encodes a transcription factor with a basic-helix-loop-helix-leucine zipper (bHLH-Zip) motif. Ectopic expression of MITF is found to convert NIH/3T3 fibroblasts into cells with characteristics of melanocytes. MITF transfectants formed foci, which superficially resembled those induced by oncogenes, but did not exhibit malignant phenotypes. Instead, they contained dendritic cells that express melanogenic marker proteins such as tyrosinase and tyrosinase-related protein 1. Such properties were not observed in cells transfected with the closely related gene, TFE3. These findings indicated that MITF is involved in melanocyte differentiation. Two mutations (C760-->T and C895-->T) in MITF are found to be associated with individuals with Waardenburg syndrome type 2 (WS2). These mutations create stop codons in exon 7 and 8, respectively, and probably result in truncated proteins lacking HLH-Zip or Zip structure. To understand how these MITF mutations cause WS2 in heterozygotes, mutant MITF proteins were generated and used for DNA-binding and luciferase reporter assays. The mutated MITF proteins lose their DNA-binding activity and fail to transactivate the promoter of the tyrosinase gene. However, these mutated proteins do not appear to interfere with the activity of wild-type MITF protein in these assays, indicating that they do not show a dominant-negative effect. These findings suggest that the phenotypes of the two WS2 families are caused by loss-of-function mutations in one of the two MITF alleles, resulting in haploinsufficiency of the MITF protein, the transcription factor necessary for normal melanocyte differentiation.