Adaptation to novel environments is often associated with changes in gene regulation. Nevertheless, few studies have been able both to identify the genetic basis of changes in regulation and to demonstrate why these changes are beneficial. To this end, we have focused on understanding both how and why the lactose utilization network has evolved in replicate populations of Escherichia coli. We found that lac operon regulation became strikingly variable, including changes in the mode of environmental response (bimodal, graded, and constitutive), sensitivity to inducer concentration, and maximum expression level. In addition, some classes of regulatory change were enriched in specific selective environments. Sequencing of evolved clones, combined with reconstruction of individual mutations in the ancestral background, identified mutations within the lac operon that recapitulate many of the evolved regulatory changes. These mutations conferred fitness benefits in environments containing lactose, indicating that the regulatory changes are adaptive. The same mutations conferred different fitness effects when present in an evolved clone, indicating that interactions between the lac operon and other evolved mutations also contribute to fitness. Similarly, changes in lac regulation not explained by lac operon mutations also point to important interactions with other evolved mutations. Together these results underline how dynamic regulatory interactions can be, in this case evolving through mutations both within and external to the canonical lactose utilization network.