Expression of the pyrC gene, which encodes the pyrimidine biosynthetic enzyme dihydroorotase, is negatively regulated by pyrimidine availability in Escherchia coli. To define the mechanism of this regulation, an essential regulatory region between the pyrC promoter and the initial codons of the pyrC structural gene was identified. Mutational analysis of this regulatory region showed that the formation of a hairpin at the 5' end of the pyrC transcript, which overlaps the pyrC ribosome binding site, is required for repression of pyrC expression. Formation of the hairpin appears to be controlled by nucleotide-sensitive selection of the site of pyrC transcriptional initiation. When the CTP level is high, the major pyrC transcript is initiated with this nucleotide at a position seven bases downstream of the pyrC -10 region. This transcript is capable of forming a stable hairpin at its 5' end. When the CTP level is low and the GTP level is high, conditions found in cells limited for pyrimidines, the major pyrC transcript is initiated with GTP at a position two bases further downstream. This shorter transcript appears to be unable to form a stable hairpin at its 5' end. These results suggest a model for regulation in which the longer pyrC transcripts are synthesized predominantly under conditions of pyrimidine excess and form the regulatory hairpin, which blocks pyrC translational initiation. In contrast, the shorter pyrC transcripts are synthesized primarily under conditions of pyrimidine limitation, and they are readily translated, resulting in a high level of dihydroorotase synthesis. The data also indicate that a low level of pyrimidine-mediated regulation may occur at the level of transcriptional initiation.