T/EBP/NKX2.1, a member of the NKX family of homeodomain-containing transcription factors, regulates the expression of a number of genes in lung and thyroid. Here we describe the isolation and characterization of a novel target gene, termed claudin-18, that is down-regulated in the lungs of T/ebp/Nkx2.1-null mouse embryos. The gene product exhibits an amino acid sequence similar to those of the claudin multigene family of proteins that constitute tight junction strands in epithelial cells. The gene was localized by fluorescence in situ hybridization to mouse chromosome 9 at region 9E3-F1 and to human chromosome 3 at region 3q21-23. The claudin-18 gene has two promoters, each with its own unique exon 1 that is spliced to common exons 2 through 5. Alternative usage of these promoters leads to production of lung and stomach-specific transcripts. The downstream lung-specific promoter contains two T/EBP/NKX2.1 binding sites responsible for trans activation of the gene by T/EBP/NKX2.1 in lung cells. Only claudin-18 was down-regulated in T/ebp/Nkx2.1-null embryo lungs among 11 claudin transcripts examined. Furthermore, the claudin-18 transcript has an alternative 12-bp insertion derived from the 5' end of intron 4, which produces a C-terminally truncated isoform in lung and stomach. Immunohistochemistry demonstrated complete membrane localization of claudin-18 with small focal dots in the lung and stomach epithelial cells. Immunogold electron microscopy analysis revealed that claudin-18 is concentrated at the cell-cell borders of epithelial cells. These unique features suggest a potentially important role for claudin-18 in the structure and function of tight junctions in lung and stomach.