Drosophila melanogaster neurogenesis requires the opposing activities of two sets of basic helix-loop-helix (bHLH) proteins: proneural proteins, which confer on cells the ability to become neural precursors, and the Enhancer-of-split [E(spl)] proteins, which restrict such potential as part of the lateral inhibition process. Here, we test if E(spl) proteins function as promoter-bound repressors by examining the effects on neurogenesis of an E(spl) derivative containing a heterologous transcriptional activation domain [E(spl) m7Act (m7Act)]. In contrast to the wild-type E(spl) proteins, m7Act efficiently induces neural development, indicating that it binds to and activates target genes normally repressed by E(spl). Mutations in the basic domain disrupt m7Act activity, suggesting that its effects are mediated through direct DNA binding. m7Act causes ectopic transcription of the proneural achaete and scute genes. Our results support a model in which E(spl) proteins normally regulate neurogenesis by direct repression of genes at the top of the neural determination pathway.