We isolated the rat aldose reductase gene and examined the 5'-flanking sequence for the presence of transcription regulatory element responsive to hyperosmolarity. Deletion of aldose reductase gene up to -1047 bp abolished the transcriptional activation in response to osmotic stimuli in transient transfection experiments. A 17-bp sequence [rat osmotic response element (rORE)], which is located in bp -1073/-1057 and contains the TGGAAAATCAC sequence, confers osmotic response on a heterologous promoter. Electrophoretic mobility shift assays using the 17-bp fragment demonstrated that distinct DNA-protein complexes (I and II) were formed predominantly with nuclear extracts from the cells exposed to hyperosmolarity. When the nuclear extracts were preincubated with calf intestinal alkaline phosphatase or protein phosphatase 1, formation of complexes I and II was reduced to the control level. However, incubation with protein tyrosine phosphatase and addition of antiphosphotyrosine antibody had no effect on the complexes. When the nuclear extracts were preincubated with diamide to oxidize the thiols, complexes I and II were not affected. Pretreatment of the cells with cycloheximide abolished the complexes. All of these data indicate that activation by phosphorylation and/or increased synthesis of rORE-binding protein(s) are the key steps in induction of transcription of the rat aldose reductase gene by hyperosmolarity. Furthermore, we showed that glucose was more effective than NaCl in induction of aldose reductase both in transient transfection experiments and by Northern blot analysis. The results suggest the presence of a glucose-specific mechanism of induction in addition to that by NaCl.