Binding of ligand to the estrogen receptor, a member of the steroid receptor gene family, rapidly increases PRL gene transcription. A 15 base pair core sequence 5'TTGTCACTATGTCCT-3' greater than 1.5 kilobase upstream from the rat PRL gene transcription start site is necessary for receptor binding, demonstrates interaction with the receptor DNA binding domain, and confers estrogen regulation. Transient cotransfection of expression plasmids encoding mutant estrogen receptors with a luciferase reporter plasmid under regulation of the rat PRL estrogen regulatory element were used to investigate the minimal information necessary and sufficient for activation of gene transcription. These analyses confirmed the absolute requirement for the receptor DNA binding domain in positive regulation of transcription, and revealed that removal of amino-terminal domains reduced, but did not abolish transcriptional effects. In contrast, truncation of the receptor immediately carboxy-terminal to the DNA binding domain resulted in constitutive activation of the receptor. The observations that removal of the steroid binding domain results in a constitutively active transcriptional factor, and that the amino-terminal domains are not required for transcriptional effect provides evidence that for two members of the steroid receptor gene family (the glucocorticoid and estrogen receptors), a relatively short DNA binding domain is sufficient for transcriptional activation. These results are likely to be prototypic for other members of this family of transcriptional factors.