The CDK inhibitor p21WAF1/CIP1 is a negative regulator of the cell cycle, and its expression is induced during terminal differentiation in vitro and in vivo. Expression of p21 is controlled at the transcriptional level by both p53-dependent and -independent mechanisms. Our previous studies established that p21 is expressed in the Caco-2 adenocarcinoma cell line, and its expression is induced by a p53-independent mechanism during differentiation of these cells. Here we have found that transcription of p21 in Caco-2 cells is controlled primarily by the transcription factors Sp1 and Sp3 through two Sp1 binding sites, Sp1-1 and Sp1-2, located between -119 and -114 bp and between -109 and -104 bp of the p21 promoter, respectively. Sp1 and Sp3 binding to the p21 promoter increased during Caco-2 cell differentiation, while the absolute level of Sp1 did not change and the absolute level of Sp3 increased approximately twofold. Transfection experiments in the SL2 Drosophila cell line that lacks endogenous Sp3 activity demonstrated that Sp1 transactivates the p21 promoter primarily through the Sp1-2 site, while Sp3 acts through the Sp1-1 site. In these cells Sp3 is a stronger transactivator of the p21 promoter than Sp1. Our data suggest that induction of p21 transcription during Caco-2 differentiation is modulated by Sp1/Sp3 interactions with the p21 promoter.