Insertion of a human keratin 18 (K18)-bacterial beta-galactosidase (LacZ) fusion gene into mice has led to a unique transgenic line in which expression of the transgene is subject to unusual germ line-specific, genomic imprinting effects. Fetal expression of the LacZ reporter gene depends on the gender of the transmitting parent, with appropriate expression in liver after maternal inheritance, and ectopic expression in retina and mesodermal tissues after paternal inheritance. This tissue-specific imprinting pattern is superimposed upon a basic expression pattern which is unaffected by parental inheritance. Insertion of the transgene has led to a recessive-lethal phenotype, with no parent-of-origin effects on viability, suggesting that the transgene has not inserted into an imprinted region of the genome. HpaII and HhaI methylation sensitive restriction sites within the bacterial LacZ reporter gene are completely methylated when activity of the maternally inherited transgene is detected in the fetal liver, and not methylated when the paternally inherited transgene is silent. Thus DNA methylation of LacZ is correlated with maternal inheritance and may be implicated in the genomic imprinting mechanism as others have suggested. However, in contrast to the commonly found correlation of expression and low DNA methylation, the LacZ gene was expressed in fetal liver when fully methylated. This result may imply the existence of negative regulatory activities that recognize the unmethylated LacZ gene.