Current evidence suggests that uncoupling protein-2 (UCP2) is a regulator of insulin secretion. It is also known that chronic exposure of pancreatic islets to free fatty acids (FFAs) blunts glucose-stimulated insulin secretion and is accompanied by elevated levels of UCP2. However, the mechanisms regulating expression of UCP2 in beta-cells are unknown. Here, we show that UCP2 mRNA and protein levels were increased after a 48-h exposure of INS-1(832/13) beta-cells to oleic acid (0.5 mm) by activation of the UCP2 promoter. Furthermore, progressive deletions of the mouse UCP2 promoter (from -7.3 kb to +12 bp) indicated that an enhancer region (-86/-44) was responsible for both basal and FFA-stimulated UCP2 gene transcription. This enhancer contains tightly clustered Sp1, sterol regulatory element (SRE), and double E-Box elements. While all three sequence motifs were required for basal activity of the UCP2 promoter, the mutations in either the SRE or the E-Box elements eliminated the response to FFAs. The SRE and sterol regulatory element binding protein-1 (SREBP1) appear to be crucial for the response of the UCP2 gene to FFAs, since overexpression of the nuclear forms of the SREBPs increased UCP2 promoter activity by 7-10-fold and restored the ability of E-Box mutants to respond to oleic acid. These data support a model in which SREBP is the major modulator of UCP2 gene transcription by FFA, while E-Box binding factors play a supportive role.