HAND2 (dHAND) is a basic helix-loop-helix (bHLH) transcription factor expressed in numerous tissues during development including the heart, limbs, and a subset of neural crest derivatives. Functional analysis has shown that HAND2 is involved in development of the branchial arches, heart, limb, vasculature, and nervous system. Although it is essential for development of numerous tissues, little is known about its mode of action. To this end, we have characterized HAND2 transcriptional regulatory mechanisms. Using mammalian one-hybrid analysis we show that HAND2 contains a strong transcriptional activation domain in the amino-terminal third of the protein. Like most tissue-restricted bHLH factors, HAND2 heterodimerizes with the broadly expressed bHLH factors, the E-proteins. We determined the consensus DNA binding site of HAND2 and show that HAND2 binds a subset of E-boxes as a heterodimer with E12. Yeast two-hybrid screening of a neuroblastoma cDNA library for HAND2-interacting proteins selected HAND2 and numerous additional members of the E-protein family. Although HAND2 homodimer formation was confirmed by in vitro analysis, HAND2 fails to homodimerize in a mammalian two-hybrid assay but demonstrates robust HAND2/E12 interaction. We conclude that HAND2 functions as a transcription activator by binding a subset of E-boxes as a heterodimer with E-proteins.