Cholesterol homeostasis is maintained by feedback inhibition of transcription of the gene encoding HMG CoA reductase. To study this mechanism, we joined the 5' end of the hamster reductase gene to the coding region for chloramphenicol acetyltransferase (CAT). The chimeric gene produced high levels of CAT activity in mouse L cells; sterols suppressed expression by 70% to 90%. Sequences responsible for both promotion and inhibition of transcription were distributed over 500 bp extending 300 bp upstream of the reductase transcription initiation sites. Any sizable deletion within this region decreased CAT expression in vivo and CAT mRNA transcription in vitro. This region contains five hexanucleotide repeats (CCGCCC or GGGCGG) that occur in promoters of viral and cellular housekeeping genes. Every reductase-CAT plasmid that showed transcriptional activity also showed inhibition by sterols, indicating that the sites for promotion and inhibition of transcription are closely associated.