Cephalosporin hyper-resistant Enterobacter cloacae strains are isolated with increasing frequency from hospital infections. Resistance is principally due to the chromosomal ampC gene encoding a cephalosporinase. In contrast to Escherichia coli which expresses ampC constitutively from a promoter located in the upstream frdD gene, E. cloacae displays inducible ampC expression. By cloning the ampC gene it was shown that a linked genetic locus, ampR, mediated the induction by beta-lactams. In the absence of the antibiotic the 30,500 dalton AmpR protein represses ampC expression. The ampR gene shows a highly compact arrangement and is situated between the divergently expressed ampC gene and the frd operon from which it is separated by a bifunctional transcription terminator. The promoters for ampR and ampC substantially overlap and mRNA analyses showed that on induction transcription from the ampC promoter increased greatly whereas that from ampR did not. Two regions of sequence homology flank the ampR gene and it is proposed that a homologous recombination event between these in an ancestral enteric bacterium may have led to the deletion of ampR from the E. coli genome.