The objective of this study was to determine the mechanisms by which cortisol down-regulates hepatic insulin-like growth factor-II (IGF-II) gene expression in late gestation. Leader exons 6 and 7 of the ovine IGF-II gene, with their 5-flanking regions, were first isolated. Characterization of transcription start sites revealed a unique site for exon 6 and three dispersed sites for exon 7. Nuclear run-on assays showed a 5-fold higher transcription rate of the IGF-II gene in liver of adrenalectomized fetuses compared with control animals, suggesting that regulation of IGF-II gene expression by cortisol is at the transcriptional level. RNase protection assays demonstrated hepatic leader exon 7 expression in adrenalectomized fetuses to be more than 2-fold higher than in controls, whereas it was reduced by 50% in cortisolinfused fetuses compared with controls. There was no effect on the expression of other leader exons. Functions of the upstream regulatory region of leader exon 7 (i.e. promoter P4) were investigated by luciferase transient expression. A region of ؊172 bases downstream relative to the first transcription site of leader exon 7 was shown to retain basal promoter activity and respond to cortisol. These results suggest that cortisol may induce the prenatal decline in ovine hepatic IGF-II expression by suppressing promoter P4 of the IGF-II gene.