Cyp26A1 encodes an RA (retinoic acid)-catabolizing CYP (cytochrome P450) protein that plays a critical role in regulating RA distribution in vivo. Cyp26A1 expression is inducible by RA, and the locus has previously been shown to contain a RARE (RA response element), R1, within the minimal promoter [Loudig, Babichuk, White, Abu-Abed, Mueller and Petkovich (2000) Mol. Endocrinol. 14, 1483-1497]. In the present study, we report the identification of a second functional RARE (R2) located 2.0 kb upstream of the Cyp26A1 transcriptional start site. Constructs containing murine sequences encompassing both R1 and R2 showed that these elements work together to generate higher transcriptional activity upon treatment with RA than those containing R1 alone. Inclusion of R2 also dramatically enhanced the sensitivity of reporter constructs to RA, as even treatment with 10(-8) M RA resulted in a 5-fold induction of reporter activity. Mutational analysis identified R2 as the functional element responsible for the increased RA inducibility of promoter constructs. The element was shown to bind RARgamma (RA receptor gamma)/RXRalpha (retinoid X receptor alpha) heterodimers in vitro, and inclusion of nuclear receptors in transfections boosted the transcriptional response. A construct containing both R1 and R2 was used to generate a stable luciferase reporter cell line that can be used as a tool to identify factors regulating Cyp26A1 expression. The analysis of R1 and R2 has led to the proposal that the two elements work synergistically to provide a maximal response to RA and that R2 is an upstream enhancer.