The early expression of the Drosophila segment polarity gene gooseberry (gsb) is under the control of the pair-rule genes. We have identified a 514-bp enhancer which reproduces the early gsb expression pattern in transgenic flies. The transcription factor Paired (Prd) is the main activator of this enhancer in all parasegments of the embryo. It binds to paired-and homeodomain-binding sites, which are segregated on the enhancer. Using site-directed mutagenesis, we have identified sites critical for Prd activity. Negative regulation of this enhancer is mediated by the Even-skipped protein (Eve) in the odd-numbered parasegments and by the combination of Fushi-tarazu (Ftz) and Odd-skipped proteins in the even-numbered parasegments. The organisation of the Prd-binding sites, as well as the necessity for intact DNA binding sites for both paired- and homeodomains, suggests a molecular model whereby the two DNA-binding domains of the Prd protein cooperate in transcriptional activation of gsb. This positive activity appears to be in competition with Eve and Ftz on Prd homeodomain-binding sites. (C) 2000 Academic Press.