We have previously demonstrated that histone deacetylase 7 (HDAC7) expression and splicing play an important role in smooth muscle cell (SMC) differentiation from embryonic stem (ES) cells, but the molecular mechanisms of increased HDAC7 expression during SMC differentiation are currently unknown. In this study, we found that platelet-derived growth factor-BB (PDGF-BB) induced a 3-fold increase in the transcripts of HDAC7 in differentiating ES cells. Importantly, our data also revealed that PDGF-BB regulated HDAC7 expression not through phosphorylation of HDAC7 but through transcriptional activation. By dissecting its promoters with progressive deletion analysis, we identified the sequence between -343 and -292 bp in the 5'-flanking region of the Hdac7 gene promoter as the minimal PDGF-BB-responsive element, which contains one binding site for the transcription factor, specificity protein 1 (Sp1). Mutation of the Sp1 site within this PDGF-BB-responsive element abolished PDGF-BB-induced HDAC7 activity. PDGF-BB treatment enhanced Sp1 binding to the Hdac7 promoter in differentiated SMCs in vivo as demonstrated by the chromatin immunoprecipitation assay. Moreover, we also demonstrated that knockdown of Sp1 abrogated PDGF-BB-induced HDAC7 up-regulation and SMC differentiation gene expression in differentiating ES cells, although enforced expression of Sp1 alone was sufficient to increase the activity of the Hdac7 promoter and expression levels of SMC differentiation genes. Importantly, we further demonstrated that HDAC7 was required for Sp1-induced SMC differentiation of gene expression. Our data suggest that Sp1 plays an important role in the regulation of Hdac7 gene expression in SMC differentiation from ES cells. These findings provide novel molecular insights into the regulation of HDAC7 and enhance our knowledge in SMC differentiation and vessel formation during embryonic development.