Transgenic mice carrying a liver-specific promoter fused to a nuclear-targeted lacZ reporter gene were generated. Three separate lines of mice showed liver expression in the adult and no expression elsewhere in the animal. These results show that a 1.7 kb 5'-flanking region in the retinol-binding protein gene contains necessary and sufficient transcriptional signals for expression in adult livers. A fourth line (R197) did not express the transgene in the liver; instead, constitutive lacZ expression was seen during postimplantation stages of development from Day 9.5 onwards and appeared to be associated with segmented structures including somites, branchial arches, and hindbrain rhombomeres until late fetal stages. The beta-galactosidase positive cells in R197 were later seen to give rise to facial and flank musculature, and to other region-specific subpopulations of the jaws, neocortex, and brain stem. Northern blot analysis for the host retinol-binding protein RNA transcript did not show overlapping tissue expression with the reporter gene and suggests that transgenic phenotype seen in segmented embryonic structures of R197 and other extra-hepatic sites is from novel cis-acting transcriptional specificity. RNase protection assays of the R197 mRNA indicate that the lacZ sequences are appropriately transcribed downstream of the RBP canonical TATA box, even though the RBP promoter is itself silent. This result would suggest host flanking sequences with enhancer activity may have either activated the lacZ reporter gene or cooperated with the RBP promoter to create novel region-specific transcription. Breeding experiments have so far failed to produce offsprings that are homozygous for the transgene, and mating of transgenic F1 siblings routinely produce reduced litter sizes. Embryos that are homozygous for the transgene appear to be unable to survive beyond the egg cylinder stages of development. Thus, disruption of the host genome by insertional mutation appears to be manifest at an earlier stage than when position-effect expression of the transgene is first apparent. These experiments demonstrate that the component parts of a transgene may be subject to differential activation or suppression by host genomic flanking sequences and that even a strong, tissue-specific promoter may be overridden by host genes.