Jaagsiekte sheep retrovirus (JSRV) is the etiologic agent of a contagious bronchioloalveolar carcinoma of sheep known as sheep pulmonary adenomatosis (SPA; ovine pulmonary carcinoma). JSRV is unique among retroviruses because it transforms the alveolar type II cells and the nonciliated bronchiolar cells (Clara cells) of the lungs; these cells are where JSRV is specifically expressed in both naturally and experimentally SPA-affected sheep. In this study, we investigated the cell specificity of JSRV expression. By transient-transfection assays of 23 different cell lines with a reporter plasmid driven by the JSRV long terminal repeat (LTR), pJS21-luc, we found that the JSRV LTR is preferentially active in cell lines derived from type II pneumocytes and Clara cells (MLE-15 and mtCC1-2 mouse cell lines). Reporter assays using progressive 5' deletions of pJS21-luc allowed us to establish that the JSRV enhancers are able to activate the JSRV proximal promoter in MLE-15 and mtCC1-2 cells, but they have very low activity in mouse cells of other lineages (e.g., NIH 3T3). The JSRV enhancers are able to activate heterologous promoters in both MLE-15 and 3T3 cells, although optimal activity is achieved in MLE-15 cells only with the homologous JSRV promoter. Thus, JSRV cell-specific LTR activity appears to result from an interaction between the enhancer elements and the JSRV proximal promoter elements. By mutation analysis, we established that an upstream NF-kappaB-like element appears to be responsible for approximately 50% of the JSRV LTR transcriptional activity in MLE-15 cells. Electrophoretic mobility shift assays showed evidence of a factor(s) that binds to this sequence. Antibody supershift experiments indicated that the factor(s) is not related to NF-kappaB component p50 or p52. This factor also appeared to be present in cells that do not support a high level of JSRV expression. Finally the JSRV(21) LTR contains putative enhancer binding motifs for transcription factors such as hepatocyte nuclear factor 3 (HNF-3) that are involved in lung-specific gene expression. Cotransfection experiments demonstrated that exogenous HNF-3 is able to enhance the expression of pJS21-luc in NIH 3T3 cells, which normally show minimal enhancer activity for the JSRV LTR.