Hydra provides an interesting developmental model system where pattern formation processes are easily accessible to experimentation during regeneration. Previous studies have shown that the neuropeptide head activator affects cellular growth and head-specific cellular differentiation during head regeneration and budding. In order to investigate the signal transduction pathway and the regulatory genes involved in these processes, we measured cAMP levels after head activator treatment and found that head activator leads to an increase in cAMP levels at concentrations where effects on nerve cell determination and differentiation are observed (10(-11) to 10(-9) M). Moreover, exposure of intact hydra to a permeable form of cAMP stimulates nerve-cell differentiation and thus mimicks the effect of endogenous head activator. Band-shift assays were performed to detect changes in hydra nuclear protein binding activity during regeneration or after head activator treatment. We found that the cAMP response element (CRE) promotes a specific and strong DNA-binding activity which is dramatically enhanced and modified during early regeneration or after HA treatment. We also identified a surprisingly highly conserved hydra gene encoding the cAMP Response Element Binding protein, which is involved in this CRE-binding activity. Initiation of regeneration upon wounding provokes an endogenous release of HA which leads to the final differentiation of determined nerve cells. We propose that the nerve-cell differentiation observed within the first 4-8 hours of regeneration relies on the agonist effect of head activator on the cAMP pathway, which would in turn modulate the CRE-binding activity of the hydra CREB protein and thus regulate the transcriptional activity of genes involved in regeneration processes.