CCAAT/enhancer binding protein alpha (C/EBP alpha) is expressed at high levels in quiescent hepatocytes and in differentiated adipocytes. In cultured cells, C/EBP alpha inhibits cell proliferation in part via stabilization of the p21 protein. The role of C/EBP alpha in regulating hepatocyte proliferation in vivo is presented herein. In C/EBP alpha knockout newborn mice, p21 protein levels are reduced in the liver, and the fraction of hepatocytes synthesizing DNA is increased. Greater than 30% of the hepatocytes in C/EBP alpha knockout animals continue to proliferate at day 17 of postnatal life when cell division in wild-type littermates is low (3%). p21 protein levels are relatively high in wild-type neonates but undetectable in C/EBP alpha knockout mice. The reduction of p21 protein in the highly proliferating livers that lack C/EBP alpha suggests that p21 is responsible for C/EBP alpha-mediated control of liver proliferation in newborn mice. During rat liver regeneration, the amounts of both C/EBP alpha and p21 proteins are decreased before DNA synthesis (6 to 12 h) and then return to presurgery levels at 48 h. Although C/EBP alpha controls p21 protein levels, p21 mRNA is not influenced by C/EBP alpha in liver. Using coimmunoprecipitation and a mammalian two-hybrid assay system, we have shown the interaction of C/EBP alpha and p21 proteins. Study of p21 stability in liver nuclear extracts showed that C/EBP alpha blocks proteolytic degradation of p21. Our data demonstrate that C/EBP alpha regulates hepatocyte proliferation in newborn mice and that in liver, the level of p21 protein is under posttranscriptional control, consistent with the hypothesis that protein-protein interaction with C/EBP alpha determines p21 levels.