The KAR2 gene of Saccharomyces cerevisiae codes for an essential chaperone protein (BiP) that is localized in the lumen of the endoplasmic reticulum (ER). The high basal rate of transcription of KAR2 is increased transiently by heat shock: prolonged induction occurs when unfolded proteins accumulate in the ER. Three cis‐acting elements in the KAR2 promoter control expression of KAR2: (i) a GC‐rich region that contributes to the high level of constitutive expression, (ii) a functional heat shock element (HSE) and (iii) an element (UPR) that is involved in the induction of BiP mRNA by unfolded proteins. By analyzing internal deletion mutants of the KAR2 promoter, we demonstrate here that these three elements regulate transcription of KAR2 independently. Furthermore, the 22 bp UPR element causes a heterologous (CYC1) promoter to respond to the presence of unfolded proteins in the ER. Extracts of both stressed and unstressed yeast cells contain proteins that bind specifically to synthetic HSE and UPR elements and retard their migration through gels. Binding proteins specific for the UPR element can be fractionated by ammonium sulfate precipitation. Two of the proteins UPRF‐1 and UPRF‐2 (which is apparently a proteolytic degradation product of UPRF‐1) bind inefficiently to mutant versions of the UPR that are unable to confer responsiveness to unfolded proteins to the (CYC1) promoter. UPRF‐1 therefore displays the properties expected of a transcription factor that is involved in the sustained response of the KAR2 promoter to unfolded proteins in the ER. These experiments show that yeast cells can activate a transcription factor that stimulates expression of a nuclear gene in response to the accumulation of unfolded proteins in another cellular compartment.