SHP (short heterodimer partner) is an orphan nuclear receptor that plays an important role in regulating glucose and lipid metabolism. A variety of transcription factors are known to regulate transcription of the PEPCK (phosphoenolpyruvate carboxykinase) gene, which encodes a rate-determining enzyme in hepatic gluconeogenesis. Previous reports identified glucocorticoid receptor and Foxo1 as novel downstream targets regulating SHP inhibition [Borgius, Steffensen, Gustafsson and Treuter (2002) J. Biol. Chem. 277, 49761-49796; Yamagata, Daitoku, Shimamoto, Matsuzaki, Hirota, Ishida and Fukamizu (2004) J. Biol. Chem. 279, 23158-23165]. In the present paper, we show a new molecular mechanism of SHP-mediated inhibition of PEPCK transcription. We also show that the CRE1 (cAMP regulatory element 1; -99 to -76 bp relative to the transcription start site) of the PEPCK promoter is also required for the inhibitory regulation by SHP. SHP repressed C/EBPalpha (CCAAT/enhancer-binding protein alpha)-driven transcription of PEPCK through direct interaction with C/EBPalpha protein both in vitro and in vivo. The formation of an active transcriptional complex of C/EBPalpha and its binding to DNA was inhibited by SHP, resulting in the inhibition of PEPCK gene transcription. Taken together, these results suggest that SHP might regulate a level of hepatic gluconeogenesis driven by C/EBPalpha activation.