CCAAT/enhancer binding protein beta (C/EBP beta) is a transcription factor implicated in the control of development, differentiation, and proliferation of mammary epithelial cells. However, it remains unclear how C/EBP beta is involved in tumor suppression through its interaction with specific downstream genes in breast cancer. Tumor cells overexpress serine proteases, which play crucial roles in tumor invasion and metastasis. Elafin is an endogenous serine protease inhibitor and is transcriptionally down-regulated in most tumor cell lines. In this study, we show that C/EBP beta is differentially expressed in normal versus tumor cell lines and normal adjacent versus tumor tissues obtained from breast cancer patients. We identified elafin as a downstream effector of C/EBP beta and show that elafin is also differentially regulated between normal and tumor cells. The mechanism by which C/EBP beta regulates elafin expression is through its direct interaction with the elafin promoter. There are three C/EBP beta binding sites involved in the elafin promoter activity, and the overexpression of C/EBP beta transactivates the elafin gene through these sites in tumor cells. RNA interference studies in normal cells further evidenced the requirement of the C/EBP beta for the elafin expression and negative feedback loop between C/EBP beta and elafin. We suggest that elafin is a novel substrate of C/EBP beta, and alterations in C/EBP beta isoforms result in their differential binding to the elafin promoter, leading to the altered expression of the elafin between normal and tumor cells.