In previous publications we have demonstrated that peroxisome proliferators and non-steroidal anti-inflammatory drugs are inducers of the cytochrome P-450(BM-3) gene in Bacillus megaterium ATCC14581. Their mechanism of action involves binding to and subsequent displacement of the transcriptional repressor, Bm3R1, from its operator site, which results in the activation of cytochrome P-450(BM-3) gene transcription. We now present evidence that the branched-chain fatty acid, phytanic acid, is a potent inducer of cytochrome P-450(BM-3). We have also observed that phytanic acid and peroxisome proliferators are inducers of Bm3R1 protein accumulation and associated DNA-binding activity. In contrast, several barbiturates, although capable of inducing cytochrome P-450(BM-3) and Bm3R1 gene transcription, were unable to induce the Bm3R1 protein. We also demonstrate that cytochrome P-450(BM-3) readily oxidizes phytanic acid, and provide evidence that, although the ω-1 hydroxy acid derivatives of phytanic acid can associate with Bm3R1, they do so with an affinity two orders of magnitude lower than the unmodified fatty acid. As a consequence, the ability of the hydroxylated product to induce cytochrome P-450(BM-3) gene expression in vivo is markedly reduced. These data collectively suggest that metabolism of fatty acids by cytochrome P-450 leads to an attenuation of their ability to activate the transcription of the BM-3 operon. This work places the action of bacterial fatty acid hydroxylases in an autoregulatory loop where they may be responsible for the inactivation or clearance of the inducing fatty acid signal.