Insulin-like growth factor-II (IGF-II) is a secreted 67-amino acid peptide that functions principally as a prenatal growth regulator in mammals. To date, the mechanisms involved in the stimulation of IGF-II expression in the embryo and its attenuation after birth are unknown. Recent studies have shown that IGF-II mRNA and protein are induced during the terminal stages of muscle development in vitro, and that IGF-II may act as an autocrine differentiation agent for skeletal myoblasts. We now have investigated the regulation of IGF-II gene expression in muscle cells. Steady state levels of IGF-II mRNA increased by more than 30-fold during terminal differentiation of the C2 mouse myoblast cell line. Transcription run-on experiments using isolated muscle cell nuclei and direct analysis of nuclear RNA each demonstrated a greater than 10-fold rise in nascent IGF-II mRNA during cellular differentiation, and ribonuclease protection experiments showed that more than 95% of IGF-II mRNAs initiated in noncoding exon 3, implying that transcriptional activation occurs principally through promoter 3, the most 3' of the three mouse IGF-II gene promoters. Analysis of chromatin structure around the IGF-II gene in C2 cells revealed four major and four minor DNase-I-hypersensitive sites, but did not provide insight into the mechanisms of gene activation, since all sites were present in proliferating and differentiating cells. Gene transfer experiments showed that promoter 3 was at least 50-fold more active than promoter 1 or 2 in C2 cells, but the functional assessment of nearly 26 kilobases of additional DNA within the IGF-II locus by an "enhancer trap" approach did not delineate any chromosomal regions capable of mediating differentiation-specific gene activation. Our results demonstrate that muscle cells encode mechanisms for activating IGF-II gene transcription and suggest that these cells may be excellent models for identifying the developmentally regulated factors that control IGF-II gene expression.