A distal enhancer that specifies apolipoprotein E gene expression in the skin was identified and characterized by in situ hybridization in transgenic mice generated with constructs of the human apolipoprotein E/C-I/C-IV/C-II gene cluster. Transgene constructs containing the enhancer expressed high levels of apolipoprotein E mRNA in the germinative cell layer of the sebaceous gland and in epithelial cells of the hair follicle root sheath. Apolipoprotein E mRNA was also detected in basal epithelial cells of the epidermis. Expression of the human apolipoprotein E transgene at these sites was specified by a unique 1.0 kb enhancer domain located 1.7 kb downstream of the apolipoprotein E gene. No transgene expression was detected in skin epithelial cells in transgenic mice when this enhancer was deleted from the apolipoprotein E gene cluster. The enhancer was used to construct a transgene expression vector that faithfully directed a heterologous cDNA to the normal sites of apolipoprotein E gene expression in epithelial cells of the skin.