Elafin (also known as skin-derived anti-leukoproteinase/trappin-2) is an epithelial host-defense protein that is absent in normal skin but highly induced in keratinocytes of inflamed skin (e.g., psoriasis), in epidermal skin tumors, and after wounding. Previously, it was shown that in cultured keratinocytes, elafin expression is induced by serum or tumor necrosis factor-alpha, and that expression is suppressed by retinoids, dithranol, and p38 mitogen-activated protein kinase inhibitors. Here we have studied the regulation of elafin gene expression in epidermal keratinocytes at the molecular level. First we determined the transcription start site of the elafin gene and found that the elafin mRNA possesses an unusually short 5'-untranslated region. Using transient transfection of luciferase reporter constructs of the elafin promoter, we mapped a 440 bp region upstream of the translation start site that conferred high-level expression in keratinocytes, but not in A431 cells or cells of mesenchymal origin. We observed that the promoter constructs were not subjected to the same regulation as the endogenous elafin gene as these constructs were highly active independent of keratinocyte stimulation. When elafin promoter constructs were stably transfected in the HaCaT keratinocyte cell line, tumor necrosis factor-alpha inducible expression of both the endogenous elafin gene and the transgene was observed, suggesting that regulation of the elafin gene is also dependent on chromatin structure. We found, however, that a stably transfected 4 kb elafin promoter fragment did not confer retinoid sensitivity indicating that additional sequences are required for proper regulation. This study reveals the complex regulation of a gene that can be used as a paradigm for the specific differentiation program of activated epidermal keratinocytes.