An insulin response element (IRE) has been identified in the prolactin gene using chimeric plasmids in which prolactin promoter DNA directs expression of the bacterial chloramphenicol acetyltransferase gene. A series of 5'-deletion constructs starting between positions -173 and -106 and extending through position +75 of the prolactin gene were all stimulated greater than 10-fold by physiological concentrations of insulin in rat pituitary tumor GH4 cells. However, insulin did not stimulate constructs starting at positions -96 and -46, suggesting that the IRE of the prolactin gene may be located in region -106/-96. Insulin stimulation of prolactin-chloramphenicol acetyltransferase constructs requires cotransfection with a human insulin receptor expression vector. Estimation of insulin receptor levels by beta-subunit phosphorylation indicates that receptor levels are increased approximately 50-fold following transfection with the human insulin receptor expression vector. This requirement for cotransfection suggests that the endogenous receptor levels may not be adequate to couple the response of transfected genes to insulin. Gel mobility shift experiments reveal a nuclear factor from GH4 cells that specifically associates with prolactin DNA fragment -106/-87. The amount or binding activity of this factor is increased following insulin treatment of cells. The concordance between functional and binding analyses of the prolactin promoter confirms the presence of an IRE in region -106/-87. The insulin-sensitive DNA-binding factor may mediate effects of insulin on prolactin gene transcription.