Sterol regulatory element binding proteins (SREBP-1 and SREBP-2) are attached to the endoplasmic reticulum (ER) and nuclear envelope by a hairpin domain consisting of two transmembrane regions connected by a short lumenal loop of approximately 30 hydrophilic amino acids. In sterol-depleted cells, a protease cleaves the protein in the region of the first transmembrane domain, releasing an NH2-terminal fragment of approximately 500 amino acids that activates transcription of genes encoding the low density lipoprotein receptor and enzymes of cholesterol synthesis. In sterol-overloaded cells, proteolysis does not occur, and transcription is repressed. Through mutational analysis in transfected cells, we identify two segments of SREBPs that are required for proteolysis, one on either side of the ER membrane. An arginine in the lumenal loop is essential. A tetrapeptide sequence (DRSR) on the cytosolic face adjacent to the first transmembrane domain is also required for maximal cleavage. Both of these elements are conserved in the human and hamster versions of SREBP-1 and SREBP-2. Sterol-mediated suppression of cleavage of SREBP-1 was found to be dependent on the extreme COOH-terminal region (residue 1034 to the COOH terminus), which exists in two forms as a result of alternative splicing. The form encoded by the "a" class exons (exons 18a and 19a) undergoes sterol-regulated cleavage. The form encoded by the "c" class exons (18c and 19c) is cleaved less efficiently and is not suppressed by sterols. These studies were made possible through use of a vector that achieves low level expression of epitope-tagged SREBPs under control of the relatively weak thymidine kinase promoter from herpes simplex virus. In contrast to SREBPs overproduced by high level expression vectors, the SREBPs produced at low levels were subject to the same regulated cleavage pattern as the endogenous SREBPs. These results indicate that sterol-regulated proteolysis of SREBPs is a complex process, requiring sequences on both sides of the ER membrane.