Genetic studies of the Drosophila erect wing (ewg) gene have revealed that ewg has an essential function in the embryonic nervous system and is required for the specification of certain muscle cells. We have found that EWG is a site-specific transcriptional activator, and we report here that evolutionarily conserved regions of EWG contribute both positively and negatively to transcriptional activity. Using gel mobility shift assays, we have shown that an EWG dimer binds specifically to DNA. In transfection assays, EWG activated expression of a reporter gene bearing specific binding sites. Analysis of deletion mutants and fusions of EWG to the Gal4 DNA binding domain has identified a transcriptional activation domain in the C terminus of EWG. Deletion analysis also revealed a novel inhibitory region in the N terminus of EWG. Strikingly, both the activation domain and the inhibitory region are conserved in EWG homologs including human nuclear respiratory factor 1 (NRF-1) and the sea urchin P3A2 protein. The strong conservation of elements that determine transcriptional activity suggests that the EWG, NRF-1, and P3A2 family of proteins shares common mechanisms of action and has maintained common functions across evolution.