Skeletal muscle differentiation is characterized by withdrawal from the cell cycle, expression of muscle specific genes, fusion into multinucleated cells, and assembly of the contractile apparatus. Although many of the key regulatory elements have been identified, the factors that initiate the differentiation process are not well understood. The calcium-dependent phosphatase calcineurin plays an important regulatory role early in myogenesis, but the downstream effectors of calcineurin in differentiation are not known. Here, we show that calcium and calcineurin regulate expression of the myogenin gene at the level of transcription. The myogenin promoter contains two essential elements; an E-box and an A/T rich element that bind MRF and MEF2 transcription factors, respectively. Both of these elements are responsive to calcium and calcineurin. In differentiating myoblasts, MyoD is the major MRF protein that binds to the myogenin promoter E-box. Calcineurin activates MyoD indirectly by decreasing the expression of the Id inhibitory proteins, probably by down-regulating Egr-1 expression, an upstream activator of Id transcription. These results demonstrate that calcineurin regulates skeletal muscle differentiation by activating MEF2 and MyoD transcription factors leading to the induction of myogenin expression.