The expression of cartilage-derived retinoic acid-sensitive protein (CD- RAP) is initiated at the beginning of chondrogenesis and continues throughout the cartilage development. In chondrocytes, CD-RAP is down-regulated by retinoic acid. To understand the molecular mechanism underlying this regulation and the cell-specific expression, the deletion constructs of the mouse CD-RAP promoter were transfected into chondrocytes and a melanoma cell line. The results revealed a domain that demonstrated high levels of expression specifically in chondrocytes. In this functional domain, we show that a cis-acting element, 5'-GCCTGAGGC-3', binds to the trans-acting factor protein AP-2. Mutation of the AP-2 site on the CD-RAP promoter led to decreased transcription in C5.18 chondrocytes, indicating that this site may act as an activator of transcription. In contrast, increased concentration of AP-2, stimulated by retinoic acid, led to decreased transcription of the CD- RAP promoter, an effect that was abolished by mutation of the AP-2 binding site. The effect of AP-2 was further examined by co-transfection of C5.18 and HepG2 cells with the CD-RAP promoter constructs and an AP-2 expression plasmid. In a dose-dependent manner, cotransfection with AP-2 elevated and then decreased CD-RAP promoter activity. Taken together, these results suggest that AP-2 is involved in the biphasic regulation of CD-RAP transcription.