Several gene families are known in which member genes are expressed in variegated patterns in differentiated cell types. Mechanisms responsible for imposition of a variegated pattern of gene expression are unknown. Members of the closely linked Ly49 inhibitory receptor gene family are expressed in a variegated fashion by NK cells. Variegated expression of these genes results in subsets of NK cells that differ in specificity for MHC class I molecules. To address the mechanisms underlying variegation, a 30-kb genomic fragment containing a single Ly49 gene was used to generate a panel of murine transgenic lines. The results demonstrated that, in almost all of the lines, the isolated Ly49A gene was expressed in a variegated pattern, remarkably similar in nearly all respects to the expression pattern of the endogenous Ly49A gene. Furthermore, the developmental timing of gene expression and regulation by host MHC molecules closely mirrored that of the endogenous Ly49A gene. Therefore, Ly49 variegation does not require competition in cis between different Ly49 genes, and the sequences imposing variegation are located proximally to Ly49 genes. Efforts to define regulatory elements of the Ly49A gene led to the identification of a DNase I hypersensitive site 4.5 kb upstream of the Ly49A gene transcription initiation site, which was shown to be essential for transgene expression. Highly related sequence elements were found upstream of other Ly49 genes, suggesting that a similar regulatory element controls each Ly49 gene.