XNGN-1, a member of the neurogenin family of basic helix-loop-helix proteins, plays a critical role in promoting neuronal differentiation in Xenopus embryos. When ectopically expressed, XNGN-1 induces the expression of a set of genes required for neuronal differentiation such as XMyT1 and NeuroD. At the same time, however, XNGN-1 induces the expression of genes that antagonize neuronal differentiation by a process called lateral inhibition. Here, we present evidence that XNGN-1 activates the expression of genes required for differentiation and lateral inhibition by recruiting transcriptional coactivators p300/CBP (CREB-binding protein) or PCAF (p300/CBP-associated protein), both of which contain histone acetyltransferase (HAT) activity. Significantly, transcriptional activation of the genes in the lateral inhibitory pathway is less dependent on the HAT activity than is the activation of the genes that mediate differentiation. We propose that this difference enables the genes in the lateral inhibition pathway to be induced prior to the genes that promote differentiation, thus enabling lateral inhibition to establish a negative feedback loop and restrict the number of cells undergoing neuronal differentiation.