Two members of the C/EBP family of basic region-leucine zipper proteins enriched in the liver, C/EBP (C/EBP alpha) and CRP2 (C/EBP beta), were previously shown to transactivate the albumin promoter in a cell type-dependent manner. These proteins function efficiently in HepG2 hepatoma cells, but inefficiently in HeLa (epithelial) and L (fibroblastic) cells. Here we have investigated the mechanism for cell-specific control of CRP2 activity. We show that CRP2 contains a negative regulatory region composed of two elements, RD1 and RD2. Deletions of RD2 relieve the inhibition of CRP2 activity in L cells, but do not affect CRP2 function in HepG2 cells. These deletions also increase the DNA binding activity of CRP2 approximately 3-fold, suggesting that RD2-mediated repression of DNA binding activity is responsible for CRP2 inhibition in L cells. The adjacent RD1 element functions independently of RD2 and modulates the CRP2 activation domain, which we show to be composed of three subdomains that are conserved within the C/EBP protein family. RD1 does not affect cell type specificity, but inhibits the transactivation potential of GAL4-CRP2 hybrid proteins by 50-fold. These findings suggest that CRP2 assumes a tightly folded conformation in which the DNA binding and activation domains are masked by interactions with the regulatory domain and that to function efficiently in HepG2 cells the protein must undergo an activation step. We propose that relief of inhibition conferred by the regulatory domains also accounts for CRP2 activation in response to extracellular signals.