The extracellular matrix (ECM) promotes tissue morphogenesis, cell migration, and the differentiation of a variety of cell types. However, the mechanisms by which ECM causes differentiated gene expression have been unknown. In this report, we show that culturing the hepatocyte-derived cell line H2.35 on an ECM gel changes cell morphology and selectively stimulates the transcription of a subset of liver-specific genes, including serum albumin. Transcriptional activation by ECM also occurs with transfected plasmids bearing the transcriptional enhancer of the albumin gene. ECM substrates of different composition activated the albumin enhancer only when the ECM promoted a cuboidal, differentiated cell morphology. Enhancer activation by the ECM was mediated by two liver transcription factors, HNF3 alpha and eH-TF, which appear to be regulated differently by matrix. Specifically, we found that a collagen gel substratum caused a selective increase in the factor HNF3 alpha at the levels of mRNA accumulation and DNA-binding activity in nuclear extracts, both in H2.35 cells and in the hepatoma cell line HepG2. We conclude that the ECM can stimulate cell differentiation by selectively activating transcriptional regulatory factors and that such regulation occurs coordinately with ECM-promoted changes in cell shape.