The location of target DNA sequences within chromatin may affect the ability of trans-acting factors to bind cis-elements and regulate gene transcription. To examine the effect of chromatin structure on the ability of the estrogen-estrogen receptor complex (E2R) to bind its respective DNA binding element within the rat prolactin (rPRL) gene and modulate rPRL gene expression, we have developed cell lines derived from the rPRL-expressing (rPRL+) rat pituitary cell line GH3 and the rPRL-non- expressing (rPRL-) rat embryo fibroblast cell line Rat1. These cell lines contain mini-chromosomes composed of the 5' upstream regulatory region of the rPRL gene driving expression of a reporter gene, Tn5, within a bovine papillomavirus (BPV) vector. The rPRL-Tn5 gene retains the characteristics of cell-specific expression and estrogen inducibility of transcription displayed by the endogenous rPRL gene. The distal enhancer region, which contains an estrogen response element, was found to exist in a nucleosome-free region in pituitary-derived cells even in the absence of estrogen. In contrast, the rPRL distal enhancer in fibroblast cells was found to be randomly packaged into nucleosomes. These results indicate that DNA sequence is not sufficient to position nucleosomes in the rPRL gene. Rather, it suggests that cell-specific factors are present in pituitary cells that modify the chromatin structure of the distal enhancer which allow E2R to bind to its response element.