Although it has been suggested that class III homeodomain leucine-zipper proteins (HD-Zip III) are involved in vascular development, details of the function of individual HD-Zip III proteins in vascular differentiation have not been resolved. To understand the function of each HD-Zip III protein in vascular differentiation precisely, we analyzed the in vitro transcriptional activity and in vivo function of Zinnia HD-Zip III genes, ZeHB-10, ZeHB-11 and ZeHB-12, which show xylem-related expression. Transgenic Arabidopsis plants harboring cauliflower mosaic virus 35S-driven ZeHB-10 and ZeHB-12 with a mutation in the START domain (mtZeHB-10, mtZeHB-12) showed a higher production of tracheary elements (TEs) and xylem precursor cells, respectively. A systematic analysis with Genechip arrays revealed that overexpression of mtZeHB-12 rapidly induced various genes, including brassinosteroid-signaling pathway-related genes and genes for transcription factors that are expressed specifically in vascular tissues in situ. Furthermore, mtZeHB-12 overexpression did not induce TE-specific genes, including genes related to programmed cell death and lignin polymerization, but did induce lignin monomer synthesis-related genes, which are expressed in xylem parenchyma cells. These results suggest that ZeHB-12 is involved in the differentiation of xylem parenchyma cells, but not of TEs.