Transcription factor playing an important role in primary neurulation and in epithelial development. Binds directly to the consensus DNA sequence 5'-AACCGGTT-3' acting as an activator and repressor on distinct target genes (PubMed:22696678). During embryogenesis, plays unique and cooperative roles with GRHL3 in establishing distinct zones of primary neurulation. Essential for closure 3 (rostral end of the forebrain), functions cooperatively with GRHL3 in closure 2 (forebrain/midbrain boundary) and posterior neuropore closure (PubMed:20654612). Regulates epithelial morphogenesis acting as a target gene-associated transcriptional activator of apical junctional complex components. Up-regulates of CLDN3 and CLDN4, as well as of RAB25, which increases the CLDN4 protein and its localization at tight junctions (PubMed:22696678). Comprises an essential component of the transcriptional machinery that establishes appropriate expression levels of CLDN4 and CDH1 in different types of epithelia (PubMed:20978075). Exhibits functional redundancy with GRHL3 in epidermal morphogenetic events such as eyelid fusion and epidermal wound repair (PubMed:21081122). In lung, forms a regulatory loop with NKX2-1 that coordinates lung epithelial cell morphogenesis and differentiation (PubMed:22955271). In keratinocytes, plays a role in telomerase activation during cellular proliferation, regulates TERT expression by binding to TERT promoter region and inhibiting DNA methylation at the 5'-CpG island, possibly by interfering with DNMT1 enzyme activity. In addition, impairs keratinocyte differentiation and epidermal function by inhibiting the expression of genes clustered at the epidermal differentiation complex (EDC) as well as GRHL1 and GRHL3 through epigenetic mechanisms (By similarity). Homodimer, also forms heterodimers with GRHL1 or GRHL3. detected at cell-cell contact areas. At 14.5 dpc expressed in lung, esophagus, skin and kidney. At 9.5 dpc expressed in foregut and surface ectoderm but not in the neural tube. At 9.5 dpc and 15.5 dpc, detected in the lung epithelium and in branchiolar and alveolar epithelial cells at 18.5 dpc and adult. Expressed in otocyst at 11.5 dpc, prominent in epithelial derivatives of the otic placode in the vestibule and cochlear duct at 18.5 dpc. At postnatal day 5, epithelial cells of the cochlear duct, which surround the endolymph-containing scala media, continued to express low levels, while little or no expression was seen in the mesenchyme-derived cells lining the scala tympani and scala vestibuli. Detected in cholangiocytes in postnatal day 1 and postnatal day 8 livers. Mutant embryos show an epithelial and anterior and posterior neural tube defects leading to death at around 11.5 dpc (PubMed:20654612, PubMed:20978075). They exhibit a fully penetrant split-face malformation, associated with cranioschisis. Closure of the remainder of the neural tube ocrurred normally with the exception of the posterior neuropore. The dorso-lateral hinge points fail to form and closure do not proceed beyond this point (PubMed:20654612). GRHL genes (GRHL1, GRHL2 and GRHL3) show a paradoxal lack of redundancy despite their extensive sequence identity in the DNA-binding and protein dimerization domains and the fact that the core consensus DNA binding sites are identical. They have related but remarkably different functions during embryogenesis because of their differential spatiotemporal expression patterns during development. Belongs to the grh/CP2 family. Grainyhead subfamily.