In an effort to determine how crude gradients of transcriptional activators and repressors specify sharp stripes of gene expression in the early embryo, we have conducted a detailed study of even-skipped (eve) stripe 2. A combination of promoter fusions and P-transformation assays were used to show that a 480 bp region of the eve promoter is both necessary and sufficient to direct a stripe of LacZ expression within the limits of the endogenous eve stripe 2. The maternal morphogen bicoid (bcd) and the gap proteins hunchback (hb), Kruppel (Kr) and giant (gt) all bind with high affinity to closely linked sites within this small promoter element. Activation appears to depend on cooperative interactions among bcd and hb proteins, since disrupting single binding sites cause catastrophic reductions in expression. gt is directly involved in the formation of the anterior border, although additional repressors may participate in this process. Forming the posterior border of the stripe involves a delicate balance between limiting amounts of the bcd activator and the Kr repressor. We propose that the clustering of activator and repressor binding sites in the stripe 2 element is required to bring these weakly interacting regulatory factors into close apposition so that they can function both cooperatively and synergistically to control transcription.