Mutations in the gene encoding hepatic nuclear factor 1-alpha (HNF1-alpha) cause a subtype of human diabetes resulting from selective pancreatic beta-cell dysfunction. We have analyzed mice lacking HNF1-alpha to study how this protein controls beta-cell-specific transcription in vivo. We show that HNF1-alpha is essential for the expression of glut2 glucose transporter and L-type pyruvate kinase (pklr) genes in pancreatic insulin-producing cells, whereas in liver, kidney, or duodenum tissue, glut2 and pklr expression is maintained in the absence of HNF1-alpha. HNF1-alpha nevertheless occupies the endogenous glut2 and pklr promoters in both pancreatic islet and liver cells. However, it is indispensable for hyperacetylation of histones in glut2 and pklr promoter nucleosomes in pancreatic islets but not in liver cells, where glut2 and pklr chromatin remains hyperacetylated in the absence of HNF1-alpha. In contrast, the phenylalanine hydroxylase promoter requires HNF1-alpha for transcriptional activity and localized histone hyperacetylation only in liver tissue. Thus, different HNF1-alpha target genes have distinct requirements for HNF1-alpha in either pancreatic beta-cells or liver cells. The results indicate that HNF1-alpha occupies target gene promoters in diverse tissues but plays an obligate role in transcriptional activation only in cellular- and promoter-specific contexts in which it is required to recruit histone acetylase activity. These findings provide genetic evidence based on a live mammalian system to establish that a single activator can be essential to direct nucleosomal hyperacetylation to transcriptional targets.