During C. elegans vulval development, the anchor cell (AC) in the somatic gonad expresses lin-3, activating the EGF receptor signaling pathway in vulval precursor cells (VPCs) and thereby inducing and patterning VPCs. Previous studies with lin-3 mutants and transgene expression have revealed that the level of LIN-3 in the AC must be precisely regulated for proper vulval development. To understand how lin-3 expression is achieved in the AC, we identified a 59 bp lin-3 enhancer sufficient to activate lin-3 transcription solely in the AC. The enhancer contains two E-box elements, and one FTZ-F1 nuclear hormone receptor (NHR) binding site that is mutated in a vulvaless mutant, lin-3(e1417). Mutagenesis studies show that both E-boxes and the NHR binding site are necessary to express lin-3 in the AC. In vitro DNA-binding studies and in vivo functional assays indicate that distinct trans-acting factors, including the E-protein/Daughterless homolog HLH-2 and unidentified nuclear hormone receptor(s), are necessary for lin-3 transcription in the AC and thus are involved in vulval development.