Transcription factors belonging to the basic helix-loop-helix (bHLH) family play critical roles in the regulation of cellular differentiation of distinct cell types. In this study, we have characterized the DNA-binding and transcriptional properties of the bHLH factor mSharp-1/DEC2. mSharp-1 belongs to the Hairy/Enhancer of Split subfamily of bHLH factors and exhibits the highest structural and sequence identity with Stra13. We show that mSharp-1 specifically binds to the E box motif (CANNTG) as a homodimer and acts as a potent transcriptional repressor of MyoD- and E12-induced E box activity and differentiation. The inhibitory activity of mSharp-1 occurs through several mechanisms including occupancy of E box sites by mSharp-1 homodimers and by direct physical interaction with MyoD and E proteins. Furthermore, by using gel mobility shift assays and chromatin immunoprecipitation experiments, we have identified Stra13 as a target for mSharp-1-mediated repression. We demonstrate that transcriptional repression of Stra13 depends, in part, on binding of mSharp-1 to three conserved E box motifs in the Stra13 proximal promoter. Moreover, mSharp-1 directly interacts with the transcriptional activator Sp1 and impairs Sp1 induction of Stra13 promoter. Our results suggest that mSharp-1 functions as a transcriptional repressor by DNA binding dependent and independent mechanisms.