The transcription factor (TF) Foxp2 has been shown to partially repress surfactant protein C (SP-C) transcription, presumably through interaction of an independent repressor domain with a conserved Foxp2 consensus site in the SP-C promoter. We explored the role of interactions between Foxp2 and the homeodomain TF Nkx2.1 that may contribute to the marked reduction in SP-C expression accompanying phenotypic transition of alveolar epithelial type II (AT2) to type I (AT1) cells. Foxp2 dose-dependently inhibited Nkx2.1-mediated activation of SP-C in MLE-15 cells. While electrophoretic mobility shift assays and chromatin immunoprecipitations revealed an interaction between Foxp2 and the conserved consensus motif in the SP-C promoter, Nkx2.1-mediated activation of the 318-bp proximal SP-C promoter (which lacks a Foxp2 consensus) was attenuated by increasing amounts of Foxp2. Co-immunoprecipitation and mammalian two-hybrid assays confirmed a physical interaction between Nkx2.1 and Foxp2 mediated through the Nkx2.1 homeodomain. Formation of an Nkx2.1 complex with an SP-C oligonucleotide was inhibited dose-dependently by recombinant Foxp2. These findings demonstrate that direct interaction between Foxp2 and Nkx2.1 inhibits Nkx2.1 DNA-binding and transcriptional activity and suggest a mechanism for down-regulation of SP-C (and probably other AT2 cell genes) during transition of AT2 cells to an AT1 cell phenotype.