The Wilms' tumor suppressor gene (wt1) encodes a zinc finger DNA binding protein (WT1) which functions as a transcriptional regulator and is essential for normal urogenital development. WTI has previously been shown to repress the transcription of a variety of target genes whose products stimulate growth, such as growth factors, growth factor receptors and other transcription factors. In this study, we identify syndecan-1 as a target gene for WT1-mediated activation. Syndecan-1 is a cell surface proteoglycan whose induction is coincident with epithelial differentiation during kidney development and whose loss of expression is correlated with the loss of the epithelial phenotype and malignant transformation. The murine syndecan-1 promoter contains several potential binding sites for WT1. We demonstrate that both WT1 (-KTS) and WT1 (+ KTS) isoforms bind to multiple sites in this highly G+ C-rich region, as detected by gel-shift analyses. These WT1 isoforms function as transcriptional activators of syndecan-1 expression in transient transfection assays. Activation of syndecan-1 by WT1 is dependent on an intact zinc-finger region as well as a 179 amino acid proline-rich region in the amino terminus of the protein. Moreover, the endogenous syndecan-1 gene is activated by WT1 in a novel inducible cell line based upon the sheep metallothionein promoter. These results highlight an emerging role for WT1 as an activator of genes like syndecan-1 which may potentiate epithelial differentiation and maintenance in the developing kidney.