An initial step in the transcriptional activation of the prolactin gene by estrogen is the binding of the estrogen-receptor complex to a specific nucleotide sequence [estrogen responsive element (ERE)]. Using the gel mobility assay, we examined the binding mechanism of purified estrogen receptor to the ERE contained on a 255-base-pair fragment from the upstream region between nucleotides -1784 to -1531 of the rat prolactin gene. Remarkably, specific high-affinity binding was detected to the dissociated "coding strand" but not to the "noncoding strand" of the ERE-containing fragment. The dissociated strands of this fragment possess unusual secondary structure, as indicated by their anomalous migration in the gel mobility assay. The estrogen receptor binds to the coding strand of the ERE with a 60-fold higher affinity than to the double-stranded ERE. Furthermore, the receptor binds with a 1000-fold greater affinity to the coding strand of the ERE than to a double-stranded nonspecific DNA fragment. We propose that, in vivo, the estrogen receptor initially binds to the double-stranded ERE. Subsequently, the DNA strands separate due to transitory strand separation and supercoiling, allowing folding of the coding strand of the ERE into a structure that is then bound more tightly by the receptor. The formation of this receptor-ERE coding strand complex may be a crucial step in the mechanism of estrogen-stimulated transcription.