Analysis of the proximal promoter of the human erbB-2 gene identified a 100 bp region that enhanced activity of the proximal TATA box 200-fold. DNase I footprinting mapped three Sp1 binding sites within this 100 bp region but only one of these sites was of high affinity and strongly correlated to Sp1-dependent activity in vivo. This Sp1 site overlapped the distal of two similar palindromic sequences. The proximal palindrome did not bind Sp1 but overlaps the CAAT box. When placed in the context of a heterologous promoter, the palindrome functioned as a positive response element. However, removal of the 5' half of the proximal palindrome increased promoter activity indicating that it functions as an inhibitory element within the erbB-2 context. Using electrophoretic mobility shift assays, a nuclear protein was detected that bound to either the 5' or 3' half of the palindrome but not to both. Analysis of the function of mutant sequences revealed maximal activity when both halves of the palindrome were intact with decreased but significant activity persisting when the 3' half of the palindrome was disrupted. Disruption of the 5' half of the palindrome impaired activity to a greater extent. These studies indicate erbB-2 promoter activity is positively regulated by Sp1 and negatively regulated in a position-dependent context by a protein that binds to a palindromic sequence.