We have investigated the role of 5'-flanking DNA sequences in regulating the expression of the murine Sparc (osteonectin) gene in parietal endoderm cells and in F9 embryonal carcinoma cells induced to differentiate into parietal endoderm with retinoic acid and cyclic AMP. Varying lengths of flanking sequences extending up to 3.0 kilobase pairs 5' of the transcription initiation site were linked to the bacterial chloramphenicol transacetylase gene in the Bluescript M13- vector. The constructs were tested in transient assays, using a beta-galactosidase plasmid as a transfection control. Sequences between 78 and 169 base pairs upstream of the cap site are the minimum required for cell-type specific promoter activity; this region is dominated by two oligopurine/oligopyrimidine stretches or "GAGA" boxes and is highly conserved between the mouse and bovine genes. Addition of the sequence between -169 and -449, which includes part or all of a third GAGA box, results in increased parietal endoderm specific transcription, up to a maximum of 6.3-fold higher than in undifferentiated F9 cells. Further addition of sequences between -449 and -638 markedly reduces promoter activity in both cell types but parietal endoderm-specific activity is restored in constructs containing 2.2 and 3.0 kilobase pairs of flanking DNA. In addition, we have identified sequences related to the consensus sequence for steroid response elements, one of which is able to confer progesterone-enhanced transcription when tested with a heterologous promoter in steroid responsive cells. These results suggest that negative and positive elements normally interact to regulate the temporal and tissue-specific patterns of Sparc gene transcription seen in vivo.