Many phenotypic differences between species are driven by changes in transcriptional regulation, frequently detected as a change in mRNA transcript levels. Here we use a plasmid-based system and flow cytometry to explore how the regulation of the lac operon differs among natural isolates of E. coli. We find both cis- and trans- changes that affect regulation. These changes not only affect transcript levels, but inducer sensitivity, the speed of transcriptional change, and the level of variation between individual cells (transcriptional noise). We then focus specifically on two SNPs within the lac operon that differ between two closely related natural isolates, and quantify the effects each of these polymorphisms on regulation. The substantial differences we find in the regulatory behaviour of the E. coli lac operon suggests that there is significant, on-going selection on this phenotype in nature.