Prospero is a panneural transcription factor that modulates homeodomain protein activity.

The panneural protein Prospero is required for proper differentiation of neuronal lineages and proper expression of several genes in the nervous system of Drosophila. Prospero is an evolutionarily conserved, homeodomain-related protein with dual subcellular localization. Here we show that Prospero is a sequence-specific DNA-binding protein with novel sequence preferences that can act as a transcription factor. In this role, Prospero can interact with homeodomain proteins to differentially modulate their DNA-binding properties. The relevance of functional interactions between Prospero and homeodomain proteins is supported by the observation that Prospero, together with the homeodomain protein Deformed, is required for proper regulation of a Deformed-dependent neural-specific transcriptional enhancer. We have localized the DNA-binding and homeodomain protein-interacting activities of Prospero to its highly conserved C-terminal region, and we have shown that the two regulatory capacities are independent.