Chromatin structure is thought to play a critical role in gene expression. Using the lac operator/repressor system and two colour variants of green fluorescent protein (GFP), we developed a system to visualize a gene and its protein product directly in living cells, allowing us to examine the spatial organization and timing of gene expression in vivo. Dynamic morphological changes in chromatin structure, from a condensed to an open structure, were observed upon gene activation, and targeting of the gene product, cyan fluorescent protein (CFP) reporter to peroxisomes was visualized directly in living cells. We found that the integrated gene locus was surrounded by a promyelocytic leukaemia (PML) nuclear body. The association was transcription independent but was dependent upon the direct in vivo binding of specific proteins (EYFP/lac repressor, tetracycline receptor/VP16 transactivator) to the locus. The ability to visualize gene expression directly in living cells provides a powerful system with which to study the dynamics of nuclear events such as transcription, RNA processing and DNA repair.