Hepatocyte nuclear factor-1beta (HNF-1beta) is a Pit-1, Oct-1/2, UNC-86 (POU)/homeodomain-containing transcription factor that regulates tissue-specific gene expression in the liver, kidney, and other organs. Humans with autosomal dominant mutations of HNF-1beta develop maturity-onset diabetes of the young type 5 (MODY5) and congenital cystic abnormalities of the kidney. Autosomal recessive polycystic kidney disease (ARPKD) is an inherited cystic disorder that produces renal failure in infants and children and is caused by mutations of PKHD1. The proximal promoter of the mouse Pkhd1 gene contains an evolutionarily conserved HNF-1-binding site that is located near a region of deoxyribonuclease hypersensitivity. HNF-1beta and the structurally related HNF-1alpha bind specifically to the Pkhd1 promoter and stimulate gene transcription. Mutations of the HNF-1 site or expression of a dominant-negative HNF-1beta mutant inhibit Pkhd1 promoter activity in transfected cells. Transgenic mice expressing a dominant-negative HNF-1beta mutant under the control of a kidney-specific promoter develop renal cysts, similarly to humans with MODY5. Pkhd1 transcripts are absent in the cells lining the cysts but are present in morphologically normal surrounding tubules. These studies identify a link between two cystic disease genes, HNF1beta (MODY5) and PKHD1 (ARPKD). HNF-1beta directly regulates the transcription of Pkhd1, and inhibition of PKHD1 gene expression may contribute to the formation of renal cysts in humans with MODY5.