Single-copy human beta-globin transgenes are very susceptible to suppression by position effects of surrounding closed chromatin. However, these position effects are overcome by a 20 kbp DNA fragment containing the locus control region (LCR). Here we show that the 6.5 kbp microlocus LCR cassette reproducibly directs full expression from independent single-copy beta-globin transgenes. By testing individual DNase I-hypersensitive sites (HS) present in the microlocus cassette, we demonstrate that the 1.5 kbp 5'HS2 enhancer fragment does not direct beta-globin expression from single-copy transgenes. In contrast, the 1.9 kbp 5'HS3 fragment directs beta-globin expression in five independent single-copy transgenic mouse lines. Moreover, the 5'HS3 core element and beta-globin proximal promoter sequences are DNase I hypersensitive in fetal liver nuclei of these expressing transgenic lines. Taken together, these results demonstrate that LCR activity is the culmination of at least two separable functions including: (i) a novel activity located in 5'HS3 that dominantly opens and remodels chromatin structure; and (ii) a recessive enhancer activity residing in 5'HS2. We postulate that the different elements of the LCR form a 'holocomplex' that interacts with the individual globin genes.