Members of the nuclear factor 1 (NF1) transcription factor family have been postulated to be involved in the regulation of milk genes. In this work we have been able to identify the splice variant NF1-C2 as an important member of a tissue-specific activating complex that regulates the milk gene encoding carboxyl ester lipase (CEL). Mutation of the NF1 binding site in the CEL gene promoter results in a drastic reduction of the gene expression to about 15% in mammary epithelial cells. Furthermore, we demonstrate that the NF1-C2 protein interacts with a higher affinity to the NF1 binding site in the CEL gene promoter than other NF1 family members do and that NF1-C2 in the mouse mammary gland is a phosphorylated protein. During development of the mouse mammary gland, binding of NF1-C2 to the CEL gene promoter is induced at midpregnancy, in correlation with the induction of CEL gene expression. The fact that the NF1-C2 involving complex remains throughout the lactation period and decreases during the weaning period, when the CEL gene is down-regulated supports its importance in the regulation of CEL gene expression. To our knowledge, this is the first report identifying a specific, endogenously expressed NF1 isoform to be involved in the tissue-specific activation of a gene.