Wild-type strains of Escherichia coli are normally unable to metabolize cellobiose. However, cellobiose-positive (Cel(+)) mutants arise upon prolonged incubation on media containing cellobiose as the sole carbon source. We show that the Cel(+) derivatives carry two classes of mutations that act concertedly to alter the regulation of the chb operon involved in the utilization of N,N'-diacetylchitobiose. These consist of mutations that abrogate negative regulation by the repressor NagC as well as single base-pair changes in the transcriptional regulator chbR that translate into single-amino-acid substitutions. Introduction of chbR from two Cel(+) mutants resulted in activation of transcription from the chb promoter at a higher level in the presence of cellobiose, in reporter strains carrying disruptions of the chromosomal chbR and nagC. These transformants also showed a Cel(+) phenotype on MacConkey cellobiose medium, suggesting that the wild-type permease and phospho-beta-glucosidase, upon induction, could recognize, transport and cleave cellobiose respectively. This was confirmed by expressing the wild-type genes encoding the permease and phospho-beta-glucosidase under a heterologous promoter. Biochemical characterization of one of the chbR mutants, chbRN238S, showed that the mutant regulator makes stronger contact with the target DNA sequence within the chb promoter and has enhanced recognition of cellobiose 6-phosphate as an inducer compared with the wild-type regulator.