We examined the regulation of the Na+/H+ exchanger gene during differentiation of the P19 mouse embryonal carcinoma cells. Treatment of P19 cells with retinoic acid induces the development of neurons, astroglia, and microglia cells. Upon retinoic acid-induced differentiation of P19 cells, there was an early and rapid 10-fold increase in NHE1 transcription. A proximal cis-acting AP-2 site of the NHE1 promoter was sufficient for stimulation of transcription of the gene by differentiation. Bandshift experiments demonstrated that in retinoic acid-treated cells there was an elevated level of AP-2 transcription factor binding to the AP-2 consensus site of the Na+/H+ exchanger gene. In the differentiation defective mutant RAC65, the effect of differentiation on Na+/H+ exchanger gene expression was reduced by 60%. Examination of Na+/H+ exchanger activity showed that retinoic acid-treated P19 cells recovered from an acid load at a rate approximately three times greater than untreated cells. The increases in gene expression and protein activity preceded major changes in cell morphology, suggesting that the initiation of differentiation is linked to NHE1 gene expression. Our findings show for the first time that the NHE1 gene is activated early in cell differentiation and that this activation may play an important role in the process of neuronal cell differentiation.