Sodium butyrate (NaB), stimulates sodium and water absorption by inducing colonic Na⁺/H⁺ exchange. NaB induces NHE3 activity, protein and mRNA expression both in vivo and in vitro. Our previously published observations indicated that this induction is Ser/Thr kinase-dependent and that NaB-responsive elements were localized within -320/-34 bp of the rat NHE3 promoter. Here, we further delineate the mechanism of NaB-mediated NHE3 gene transcription. Transient and stable transfection of Caco-2 cells with NHE3 gene reporter constructs identified Sp binding site SpB at position -58/-55 nt as critical for NaB-mediated induction. Gel mobility shift and DNA affinity precipitation assays indicated NaB-induced binding of Sp3 and decreased binding of Sp1 to SpB element. While no changes in expression of Sp1 or Sp3 were noted, NaB induced phosphorylation of Sp1 and acetylation of Sp3. Sp3 was a more potent inducer of NHE3 gene transcription, which suggested that change in balance, favoring binding of Sp3 to SpB site would result in significant increase in NHE3 promoter activity. siRNA studies in Caco-2 cells and data from NaB-treated SL-2 cells used as a reconstitution model confirmed this hypothesis. In addition to the SpB site, which played a permissive role, an upstream novel butyrate response element located at nt -196/-175 nt was necessary for maximal induction. GMSA identified a protein/DNA complex with -196/-175 nt probe; this interaction was not affected by NaB treatment, thus suggesting that in response to NaB, Sp3 binding to site SpB precedes and results in recruitment of the putative factor to this upstream site.