Members of the Twist subfamily of basic helix-loop-helix transcription factors are important for the specification of mesodermal derivatives during vertebrate embryogenesis. This subfamily includes both transcriptional activators such as scleraxis, Hand2, and Dermo-1 and repressors such as Twist and Hand1. Paraxis is a member of this subfamily, and it has been shown to regulate morphogenetic events during somitogenesis, including the transition of cells from mesenchyme to epithelium and maintaining anterior/posterior polarity. Mice deficient in paraxis exhibit a caudal truncation of the axial skeleton and fusion of the vertebrae. Considering the developmental importance of paraxis, it is important for future studies to understand the molecular basis of its activity. Here we demonstrate that paraxis can function as a transcriptional activator when it forms a heterodimer with E12. Paraxis is able to bind to a set of E-boxes that overlaps with the closely related scleraxis. Paraxis expression precedes that of scleraxis in the region of the somite fated to form the axial skeleton and tendons and is able to direct transcription from an E-box found in the scleraxis promoter. Further, in the absence of paraxis, Pax-1 is no longer expressed in the somites and presomitic mesoderm. These results suggest that paraxis may regulate early events during chondrogenesis by positively directing transcription of sclerotome-specific genes.