The recently described Hmx family of homeodomain proteins is predominately expressed in discrete regions of developing sensory tissues. In this report, we have identified the preferred DNA-binding site of the murine Hmx3 homeodomain protein by the selection and amplification binding (SAAB) technique. The consensus Hmx-binding site contained the sequence 5'-CAAGTG-3', which differs from the 5'-TAAT-3' motif commonly associated with homeodomain proteins. Instead, the Hmx consensus is similar to the 5'-CAAGTG-3'-binding sites of Nkx2.1 and Nkx2.5 homeodomain proteins. Based on mutation studies, both the 5'-CAAG-3' core and the 3'-TG dinucleotide are required for high affinity binding by Hmx3 and the homologous Hmx1 protein. A critical determinant of this specificity is the glutamine at position 50 in the third helix of the Hmx homeodomain. Hmx1 binds to the 5'-CAAGTG-3' element with an apparent dissociation constant of 20 nM. Unexpectedly, the human Hmx1 protein specifically repressed transcription from a luciferase reporter gene containing 3 copies of the 5'-CAAGTG-3' sequence. In contrast, the Nkx2.5 protein transactivated this luciferase reporter. Interestingly, co-expression of Hmx1 and Nkx2.5 attenuated each others activity, suggesting that genes containing the CAAGTG element can integrate signals from these proteins. Therefore, Hmx1 and Nkx2. 5 proteins bind a unique DNA sequence and act as transcriptional antagonists.