Loss of genomic imprinting is involved in a number of developmental abnormalities and cancers. ZAC is an imprinted gene expressed from the paternal allele of chromosome 6q24 within a region known to harbor a tumor suppressor gene for several types of neoplasia. p57(KIP2) (CDKN1C) is a maternally expressed gene located on chromosome 11p15.5 which encodes a cyclin-dependent kinase inhibitor that may also act as a tumor suppressor gene. Mutations in ZAC and p57KIP2 have been implicated in transient neonatal diabetes mellitus (TNDB) and Beckwith-Wiedemann syndrome, respectively. Patients with these diseases share many characteristics. Here we show that mouse Zac1 and p57Kip2 have a strikingly similar expression pattern. ZAC, a sequence-specific DNA-binding protein, binds within the CpG island of LIT1 (KCNQ1OT1), a paternally expressed, anti-sense RNA thought to negatively regulate p57(KIP2) in cis. ZAC induces LIT1 transcription in a methylation-dependent manner. Our data suggest that ZAC may regulate p57(KIP2) through LIT1, forming part of a novel signaling pathway regulating cell growth. Mutations in ZAC may, therefore, contribute to Beckwith-Wiedemann syndrome. Furthermore, we find changes in DNA methylation at the LIT1 putative imprinting control region in two patients with TNDB.