Thyroid transcription factor-1 (TTF-1/Nkx2.1/TITF1) is a homeodomain-containing transcription factor essential for the morphogenesis and differentiation of the lung. In the lung, TTF-1 controls the expression of surfactant proteins that are essential for lung stability and lung host defense. In this study, we identified functionally important transcription factor binding sites in the TTF-1 proximal promoter and studied tumor necrosis factor-α (TNF-α) regulation of TTF-1 expression. TNF-α, a proinflammatory cytokine, has been implicated in the pathogenesis of acute respiratory distress syndrome (ARDS) and inhibits surfactant protein levels. Deletion analysis of TTF-1 5'-flanking DNA indicated that the TTF-1 proximal promoter retained high-level activity. Electrophoretic mobility shift assay, chromatin immunoprecipitation, and mutational analysis experiments identified functional ZBP-89, Sp1, Sp3, and TTF-1 sites in the TTF-1 proximal promoter. TNF-α inhibited TTF-1 protein levels in H441 and primary alveolar type II cells. TNF-α inhibited TTF-1 gene transcription and promoter activity, indicating that transcriptional mechanisms play important roles in the inhibition of TTF-1 levels. TNF-α inhibited TTF-1 but not Sp1 or hepatocyte nuclear factor-3 DNA binding to TTF-1 promoter. Transactivation experiments in A549 cells indicated that TNF-α inhibited TTF-1 promoter activation by exogenous Sp1 and TTF-1 without altering their levels, suggesting inhibition of transcriptional activities of these proteins. TNF-α inhibition of TTF-1 expression was associated with increased threonine, but not serine, phosphorylation of Sp1. Because TTF-1 serves as a positive regulator for surfactant protein gene expression, TNF-α inhibition of TTF-1 expression could have important implications for the reduction of surfactant protein levels in diseases such as ARDS.