Hepatocyte nuclear factor 1 alpha (HNF1 alpha) is a homeoprotein that Is expressed in the liver, kidney, pancreas, and digestive tract, Its inactivation ill mouse resulted in decreased transcription of known target genes such as albumin and alpha(1)-antitrypsin. In contrast, the phenylalanine hydroxylase (PAH) gene was totally silent and unresponsive to normal inducers like glucocorticoids and cyclic AMP in the liver, DNase I and micrococcal nuclease digestion of liver nuclei showed that HNF1 alpha inactivation had drastic effects on the chromatin structure of the PAH regulatory-regions. Three DNase I-hypersensitive sites (HSSI, HSSII, and HSSIII), typical of the actively transcribed PAR gene, were undetectable in liver from HNF1 alpha-deficient animals, Both HSSII and HSSIII elements harbor HNF1 sites, but only the Latter has detectable enhancer activity in transient-transfection assays, In addition, the PAH promoter in livers of HNF1 alpha-deficient animals tias methylated. These results suggest that HNF1 alpha could activate transcription through two mechanisms, One implies participation in the recruitment of the general transcription machinery to the promoter, and the second involves the remodeling of chromatin structure and demethylation that would allow transcription factors to interact with their cognate ris-acting elements.