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In the University labs, we have used Beta-galactosidase as a reporter gene to quantify the expression initiated by the stress-response promoter in yeast. This was done by exposing one of the two groups to osmotic stress (high salt concentration) whilst the other was unstressed. Then the levels of beta-galactosidase were compared. A question given to us afterwards asked to give advantages & disadvantages of using Beta-galactosidase compared to Luciferase as a reporter gene in this experiment. And which one would be, overall, more suitable?

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Beta-galactosidase (B-gal for short) is an enzyme that will process the substrate lactose. In applications using B-gal as a reporter (lacZ gene), two lactose analogues are commonly used: X-gal or ONPG (as pointed out by @Alan Boyd). Both substrates are colourless, becoming colourless once hydrolyzed by B-gal. The formation of this colour allows B-gal to be assayed by means of either visual inspection, or more accurate means by using a spectrophotometer or camera.

When X-Gal is hydrolyzed, an insoluble blue dye is formed. Evolution of blue colour is intensified as more substrate is hyrolyzed, allowing for quick blue/white screening by visual inspection in common applications of cloning and gene expression. Using the X-gal substrate, B-gal assays are more sensitive to gene expression (the dye precipitates out and retains colour very well), however X-gal is not quantitative (Möckli & Auerbach. BioTechniques 36:872-876 (May 2004)). In contrast, ONPG hydrolysis evolves a soluble yellow dye. This colour developement is quantitative, however is less senstive than X-gal because the linear relationship betwen light absorption (at 420 nm) and substrate concentration is small. Using ONPG as a B-gal substrate allows for quantitative measurement of B-gal activity (and therefore promoter activity). (Note that ONPG itself is not capable of inducing the lac promotor, unlike X-gal.)

Luciferase reporters (there are actually a few different luc genes) operate in a similar fashion. The enzyme cleaves its substrate, however instead of yielding an insoluble blue dye, emits a characteristic photon. Luciferase activity must be measured using specialized camera hardware to detect and count photons emitted from your yeast clones. This assay will still answer yes/no reporter questions, but can also be quantified to look at how much the reporter was activated. Luciferase activity is a quantitative reporter while also yielding spatiotemporal information.

The choice of reporters depends largely on the question you wish to answer. If promoter induction is relevant (eg, the stress-response promoter was activated), then luciferase or B-gal with X-gal are best suited for their higher sensitivity. Given that luciferase requires a special camera and optical filter (such as a gel documentation system), X-gal is ideal because it may be screened by eye. If promoter activity is being assayed, then B-gal+ONPG or luciferase will yield quantitative measurements of reporter gene activity, and require at least a spectrophotometer.

Given these are university labs, I assume that materials costs are to be minimized and ease of experimental protocol to be maximized, B-gal is the ideal reporter. Luciferase requires: more costly substrate; specialized equipment; careful handling of materials, and more time (as screening necessarily takes longer, therefore lower throughput for a lab demo setting).

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I'm pretty sure that Xgal isn't an inducer of lac expression otherwise we wouldn't add lots of IPTG in blue-white screen plates. And in any case this really wouldn't matter if we are talking about using reporters for measuring the activity of other promoters, because a lac inducer would be irrelevant. –  Alan Boyd Dec 1 '12 at 12:04
@AlanBoyd the induction of lac is irrelevant to the discussion, but I've included it for completeness. IPTG is only required if lacZ repressor is overexpressed. For example, blue/white screening is easily achieved with X-gal alone for DH10B (TOP10) strains, Mach-T1, DH5A-T1, but not others (see page viii: tools.invitrogen.com/content/sfs/manuals/topota_man.pdf ). –  leonardo Dec 1 '12 at 18:10
Here a list of other luciferase assay shortcomings. –  Gianpaolo R Dec 5 '12 at 13:22
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I think that @leonardo has this backwards. β-galactosidase can be assayed accurately and cheaply using ONPG as a colorimetric substrate with no solubility problems. All that is needed is a spectrophotometer: my guess is that this is the assay the OP used in their experiment. So my answer is - use β-galactosidase for inexpensive quantitative analysis - no need to add luciferin and ATP or to worry about oxygen availability. I'm struggling to think of a disadvantage for β-galacosidase - maybe there are higher background levels from other cellular glycosidases, whereas there will be no background luciferase activity?

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I was unaware of ONPG as a substrate for B-gal. Indeed, the problem with X-gal is that after hydrolyzation, the blue dye formation is not sensitive enough for quantitation (eg, PMID: 17957822). Whereas with luciferin, evolution of photons gives sensitive spatial and temporal information with no background (relative to B-gal). There is still a big cost differential between the two, which can be a concern for university labs. –  leonardo Nov 30 '12 at 20:24
Edited my answer to reflect info in your post. –  leonardo Dec 1 '12 at 3:54
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