In the yeast Saccharomyces cerevisiae, the phospholipid biosynthetic genes are highly regulated at the transcriptional level in response to the phospholipid precursors inositol and choline. In the absence of inositol and choline (derepressing), the products of the INO2 and INO4 genes form a heteromeric complex which binds to a 10-bp element, upstream activation sequence INO (UASINO), in the promoters of the phospholipid biosynthetic genes to activate their transcription. In the presence of inositol and choline (repressing), the product of the OPI1 gene represses transcription dictated by the UASINO element. Curiously, we identified a UASINO-like element in the promoters of both the INO2 and INO4 genes. The presence of the UASINO element in these two promoters suggested that the mechanism for the inositol-choline response would involved regulating expression of the two activator genes. Using a cat reporter gene, we find that INO2-cat expression was regulated 12-fold in response to inositol and choline but that INO4-cat was constitutively expressed. We further observed that INO2-cat was not expressed in either an ino2 or an ino4 mutant strain and was constitutively overexpressed in an opi1 mutant strain. Expression of the INO4-cat gene was affected only by mutation in the INO4 gene itself. Therefore, INO2-cat transcription is regulated by the products of both the INO2 and INO4 genes whereas INO4 must interact with another protein to activate its own transcription. Our data show that derepression of phospholipid biosynthetic gene expression involves two mechanisms: increasing the levels of the INO2 and INO4 gene products and inactivating the OPI1-mediated repression mechanism. We propose a model suggesting that this dual mechanism of regulation accounts for the observed cooperative stimulation of IN01 and CH01 gene expression (phospholipids biosynthetic genes).