The ilvC gene encodes acetohydroxy acid isomeroreductase (EC 22.214.171.124), the second enzyme in the parallel isoleucine-valine biosynthetic pathway. Expression of the ilvC gene is induced by acetohydroxy acid isomeroreductase substrates, acetohydroxybutyrate or acetolactate. This substrate induction is mediated by a positive activator encoded by an adjacent gene, ilvY. The ilvY and ilvC genes are transcribed in opposite directions from promoters that are overlapping. In this paper we characterize the in vitro DNA binding properties of the ilvY-encoded activator protein. The ilvY product binds to two adjacent operator sites located in the divergent-overlapping ilvY and ilvC promoter region. One of these operators, designated O1 contains regions of dyad symmetry centered at position +17 relative to the ilvY transcriptional start site, and the second site, designated O2, contains an homologous inverted repeat sequence centered about the -35 region of the ilvC promoter. Binding of the ilvY product at the O1 and O2 operator sites is co-operative and this ilvY protein-DNA complex in the presence of acetohydroxy acid isomeroreductase substrate is a prerequisite for RNA polymerase binding to the ilvC promoter as detected by DNase I protection experiments. Additionally, chromosomal galK transcriptional fusion assays were performed to characterize the regulation of the ilvY and ilvC promoters in vivo. Transcription of the ilvC gene is maintained at a basal level of activity which is elevated as much as 15-fold in the presence of ilvY product and acetohydroxybutyrate. The ilvY product represses ilvY transcription in a manner that does not appear to be dependent on acetohydroxy acid isomeroreductase substrate. We discuss models in which activation of ilvC transcription results from a direct interaction of ilvY protein with RNA polymerase or an ilvY-mediated alteration of the DNA conformation of the ilvC -35 promoter region. Additionally, we discuss the role of acetohydroxybutyrate and acetolactate in ilvY transcriptional regulation.