Alu repeats are interspersed repetitive DNA elements specific to primates that are present in 500,000 to 1 million copies. We show here that an Alu sequence encodes functional binding sites for retinoic acid receptors, which are members of the nuclear receptor family of transcription factors. The consensus sequences for the evolutionarily recent Alu subclasses contain three hexamer half sites, related to the consensus AGGTCA, arranged as direct repeats with a spacing of 2 bp, which is consistent with the binding specificities of retinoic acid receptors. An analysis was made of the DNA binding and transactivation potential of these sites from an Alu sequence that has been previously implicated in the regulation of the keratin K18 gene. These Alu double half sites are shown to bind bacterially synthesized retinoic acid receptors as assayed by electrophoretic mobility shift assays. These sites are further shown to function as a retinoic acid response element in transiently transfected CV-1 cells, increasing transcription of a reporter gene by a factor of approximately 35-fold. This transactivation requires cotransfection with vectors expressing retinoic acid receptors, as well as the presence of all-trans-retinoic acid, which is consistent with the known function of retinoic acid receptors as ligand-inducible transcription factors. The random insertion of potentially thousands of Alu repeats containing retinoic acid response elements throughout the primate genome is likely to have altered the expression of numerous genes, thereby contributing to evolutionary potential.