The cloned Citrobacter freundii ampC beta-lactamase is inducible in the presence of its regulatory gene ampR in Escherichia coli (Lindberg et al., 1985). The basal level of expression and inducibility are affected by two E. coli proteins encoded by the closely linked ampD and ampE genes. Deletion of both genes led to constitutive ampR-dependent overproduction of beta-lactamase, whereas an out-of-frame deletion in AmpD caused the basal expression to increase two-fold. This ampD1 mutant was inducible at lower beta-lactam concentrations than the wild type. An IS1 insertion in ampD was polar on ampE expression and increased basal beta-lactamase expression 30-fold while mediating a semi-constitutive phenotype. AmpE expressed from a recombinant plasmid in an ampD-ampE deletion mutant reduced basal beta-lactamase expression to wild-type levels but did not markedly reduce beta-lactam resistance since the cells became hyperinducible. In the absence of AmpD, increasing levels of AmpE therefore decrease the basal expression of AmpC beta-lactamase in an AmpR-dependent manner. AmpD modulated the response exerted on beta-lactamase expression by AmpE. The ampD gene encodes a 20.5kD cytoplasmic protein while the 32.1kD ampE gene product is an integral membrane protein with a likely ATP-binding site between the second and third putative transmembrane region. Since neither AmpD nor AmpE are needed for beta-lactam induction and since these proteins could not be covalently labelled by benzylpenicillin, they are not thought to act as beta-lactam-binding sensory transducers. Instead it is suggested that AmpD and AmpE sense the effect of beta-lactam action on peptidoglycan biosynthesis and relay this signal to AmpR.