Insulin-like growth factor-I (IGF-I) plays a major role in promoting skeletal growth by stimulating bone cell replication and differentiation. Prostaglandin E 2 and other agents that induce cAMP production enhance IGF-I gene transcription in cultured rat osteoblasts through a DNA element termed HS3D, located in the proximal part of the major rat IGF-I promoter. We previously determined that CCAAT/enhancer-binding protein ␦ (C/EBP␦) is the key cAMP-stimulated regulator of IGF-I transcription in these cells and showed that it transactivates the rat IGF-I promoter through the HS3D site. We now have defined the physical-chemical properties and functional consequences of the interactions between C/EBP␦ and HS3D. C/EBP␦, expressed in COS-7 cells or purified as a recombinant protein from Escherichia coli, bound to HS3D with an affinity at least equivalent to that of the albumin D-site, a known high affinity C/EBP binding sequence, and both DNA elements competed equally for C/EBP␦. C/EBP␦ bound to HS3D as a dimer, with protein-DNA contact points located on guanine residues on both DNA strands within and just adjacent to the core C/EBP half-site, GCAAT, as determined by methylation interference footprinting. C/EBP␦ also formed protein-protein dimers in the absence of interactions with its DNA binding site, as indicated by results of glutaraldehyde cross-linking studies. As established by competition gel-mobility shift experiments, the conserved HS3D sequence from rat, human, and chicken also bound C/EBP␦ with similar affinity. We also found that prostaglandin E 2 -induced expression of reporter genes containing human IGF-I promoter 1 or four tandem copies of the human HS3D element fused to a minimal promoter and show that these effects were enhanced by a co-transfected C/EBP␦ expression plasmid. Taken together, our results provide evidence that C/EBP␦ is a critical activator of IGF-I gene transcription in osteoblasts and potentially in other cell types and species.