Oct3 is an embryonic octamer-binding transcription factor, whose expression is rapidly repressed by retinoic acid (RA). In this report, we have determined the transcriptional control region of the oct3 gene and studied the mechanism of the RA-mediated repression. The chromosomal oct3 gene consists of five exons. Three subdomains of the POU region and transactivating domain are located in separate exons. Transcription initiates at multiple sites in the GC-rich region lacking a typical TATA box. The upstream 2 kb region can confer the cell type-specific expression and RA-mediated repression. Analysis of the upstream region by deletion mutagenesis locates a cis element (RARE1) which functions as a stem cell-specific, yet RA-repressible, enhancer. Footprint and gel-retardation assays show that RARE1 is composed of two domains, each of which is recognized by distinct factors. Microinjection of oct3-lacZ constructs into fertilized eggs indicates that RARE1 can function in early embryos. We suggest that RARE1 is a critical cis element for oct3 gene expression in embryonic stem cells and for the RA-mediated repression.