To identify the sequences involved in the regulation of the yeast acid phosphatase gene (PHO5) we constructed a series of hybrid promoters. Increasing lengths of 5'-flanking sequences of the PHO5 gene were placed in front of the TATA-box of constitutively expressed acid phosphatase gene (PHO3). The PHO5/PHO3 promoter constructions were used to replace the entire PHO5, PHO3 gene cluster on chromosome II. Depending on the length of PHO5 5'-flanking sequences present the PHO3 gene driven by the hybrid promoter could now be derepressed in response to inorganic phosphate (low Pi) exactly as the PHO5 wild type gene. A critical regulatory element was located between position -402 to -351 (upstream from ATG) and sequences further downstream (from -351 to -300) could increase transcriptional activation. The transcription levels of PHO3 were determined by northern blot analysis, under repressed (high Pi) and derepressed (low Pi) conditions which was paralleled by an increase in extra-cellular acid phosphatase activity. Fully regulated promoter hybrids showed a 40-fold induction of mRNA levels, comparable to wild type PHO5 promoter. Sl-nuclease protection experiments revealed that the PHO5 5'-flanking sequences, placed in front of PHO3, did not change the PHO3 transcription initiation site/s.