The p20K gene is induced in conditions of reversible growth arrest in chicken embryo fibroblasts (CEF). This expression is dependent on transcriptional activation and on a region of the promoter designated the quiescence-responsive unit (QRU). In this report, we describe the regulatory elements of the QRU responsible for activation in resting cells and characterize the trans-acting proteins interacting with these elements. We show that the QRU consists of functionally distinct domains including quiescence-specific and weak proliferation-responsive elements. The quiescence responsiveness of the QRU was mapped to two C/EBP binding sites, and the activity of the p20K promoter and its QRU was inhibited by the expression of a dominant negative mutant of C/EBPbeta in nondividing cells. The activation of QRU in response to serum starvation and contact inhibition correlated with the presence of a growth arrest-specific complex in electrophoretic mobility shift assays. This complex was supershifted by antibody for C/EBPbeta. C/EBPbeta accumulated in conditions of contact inhibition as a result of transcriptional activation. Therefore, C/EBPbeta was itself regulated as a growth arrest-specific gene in CEF. Finally, we show that the expression of p20K is regulated by linoleic acid, an essential fatty acid binding to p20K. The addition of linoleic acid to contact-inhibited CEF markedly repressed the synthesis of p20K without inducing mitogenesis. The activity of the QRU was inhibited by linoleic acid or the peroxisome proliferator-activated receptor PPARgamma2 in transient expression assays. Therefore, we have identified C/EBPbeta as a key activator of a growth arrest-specific gene in CEF and implicated an essential fatty acid, linoleic acid, in regulation of the QRU and the p20K lipocalin gene.