Bone morphogenetic protein-2 (BMP-2) stimulates the commitment and differentiation of precursor mesenchymal cells to mature bone. We have isolated and sequenced 2712 base pairs (bp) of the 5 ' flanking region of mouse BMP-2 gene. Using RNase protection assay we identified two transcription initiation sites within this 2712 bp region of the BAM-2 gene. The distal start site was mapped to -736 bp in relation to the proximal start site (+1). Recombinant BMP-2 preferentially stimulated transcription initiation from the proximal start site. To investigate the mechanism of transcription initiation from these two start sites, we identified two promoter elements upstream of the proximal and distal transcription initiation sites. Transfection of promoter-luciferase reporter constructs into cells of different organs demonstrated differential transcriptional activity of proximal and distal promoters, with highest activity in the osteoblast cell lineage. In osteoblasts, BMP-2 stimulated transcription from the proximal promoter only. Together our data provide the first evidence for the presence of two transcription initiation sites with two upstream promoter elements in mouse BMP-2 gene. Furthermore, we demonstrate for the first time that BMP-2 autoregulates its expression in osteoblasts through the proximal promoter-dependent transcriptional mechanism.