The anion exchanger protein 1 (AE1; band 3) is an abundant erythrocyte transmembrane protein that regulates chloride-bicarbonate exchange and provides an attachment site for the erythrocyte membrane skeleton on the cytoplasmic domain. We analyzed the function of the erythroid AE1 gene promoter by using run-on transcription, RNase protection, transient transfection, and transgenic mouse assays. AE1 mRNA was transcribed at a higher level and maintained at a higher steady-state level than either ankyrin or beta-spectrin in mouse fetal liver cells. When linked to a human gamma-globin gene, two different AE1 promoters directed erythroid-specific expression of gamma-globin mRNA in 18 of 18 lines of transgenic mice. However, variegated expression of gamma-globin was observed in 14 of 18 lines. While there was a significant correlation between transgene copy number and the amount of gamma-globin mRNA in all 18 lines, the transgene mRNAs initiated upstream of the start site of the endogenous AE1 mRNA. Addition of the insulator element from 5'HS4 of the chicken beta-globin cluster to the AE1/gamma-globin transgene allowed position-independent, copy-number-dependent expression at levels similar to the AE1 transcription rate in six of six lines of transgenic mice. The mRNA from the insulated AE1/gamma-globin transgene mapped to the start site of the endogenous AE1 mRNA, and gamma-globin protein was expressed in 100% of erythrocytes in all lines. We conclude that the chicken beta-globin 5'HS4 element is necessary for full function of the AE1 promoter and that position effect variegation is associated with RNA transcription from the upstream start sites.