The mouse alpha-fetoprotein (AFP) gene is transcribed at high levels in the visceral endoderm of the yolk sac and fetal liver and at much lower rates in the endoderm of the fetal gut. Expression of the gene in vivo requires the presence of at least one of three enhancers which lie in its 5' flanking region. In this report, we establish that the most distal AFP enhancer directed consistent expression of a linked AFP minigene in all three endodermal tissues in transgenic mice. The enhancer is composed of three domains, each of which is essential for full enhancer function by transient transfection assays. DNase I footprinting identified three regions of the enhancer which are protected by human hepatoma nuclear extracts, one of which corresponded to a consensus site for HNF-3 binding. Site-directed mutations in this site caused a 10-fold reduction in enhancer function by transient transfection. In transgenic mice, however, the mutation resulted in sporadic expression of the transgene, dependent on the site of integration. A similar acquisition of position-dependent sporadic expression of the transgene was observed with a mutation in a second protein binding site, despite the fact that this mutation had very little effect on enhancer function as assessed by transient transfection. These studies underscore the value of examining the functions of specific protein binding sites in vivo.