Transgenic animals carrying two transgenes, the first coding for a transactivator fusion protein comprising a tet repressor and a polypeptide which directly or indirectly activates in eucaryotic cells, and the second comprising a gene operably linked to a minimal promoter operably linked to at least one tet operator sequence, are disclosed. Isolated DNA molecules (e.g., targeting vectors) for integrating a polynucleotide sequence encoding a transactivator of the invention at a predetermined location within a second target DNA molecule by homologous recombination are also disclosed. Transgenic animals having the DNA molecules of the invention integrated at a predetermined location in a chromosome by homologous recombination are also encompassed by the invention. Methods to regulate the expression of a tet operator linked-gene of interest by administering tetracycline or a tetracycline analogue to an animal of the invention are also disclosed. The regulatory system of the invention allows for conditional inactivation or modulation of expression of a gene of interest in a host cell or animal.