A major determinant controlling reactivation of persistent viruses is likely to be the level of cellular factors which regulate virus transcription. Human cytomegalovirus (the largest human herpesvirus) does not replicate in human teratocarcinoma (T2) cells due to a block in transcription of immediate early (IE) gene expression, but these cells become permissive upon retinoic acid induced differentiation. We have analysed changes in DNA binding factors to the major IE promoter/regulatory region of HCMV that occur during differentiation of T2 cells to a permissive phenotype. We show that undifferentiated T2 cells contain a specific nuclear factor that binds to a far upstream region of the major IE regulatory region. Differentiation of T2 cells is associated with a major decrease in this factor and deletion of its specific binding site from IE expression vectors also results in increased levels of expression in undifferentiated cells. Consequently, this novel factor present in undifferentiated cells is a candidate for a differentiation specific negative regulator of HCMV IE gene expression which binds to an element upstream of the major IE enhancer.