LHX3 is a LIM homeodomain transcription factor with established roles in pituitary and nervous system development. Mutations in the human LHX3 gene are associated with severe hormone deficiency diseases. Previous studies have shown that the human LHX3 gene produces at least three protein isoforms: LHX3a, LHX3b, and M2-LHX3. In gene activation assays, LHX3a and M2-LHX3 are significantly more active than LHX3b because the actions of LHX3b are repressed by an inhibitory domain in its amino terminus. In this report, we investigate the molecular characteristics that result in reduced transcriptional capacity of LHX3b by determining the optimal DNA binding preference of LHX3b. Site selection experiments using purified human LHX3b reveal that it selects AT-rich sequences that contain ATTA/TAAT motifs. The pool of sequences selected by LHX3b is similar to that selected by LHX3a but does not conform to as strict a consensus. Further, the LHX3b-selected sites are bound more avidly by LHX3a and M2-LHX3 suggesting that LHX3b does not act by recognizing LHX3b-specific binding sites in target genes. We conclude that the amino terminal repression domain of LHX3b mostly acts to reduce the transcriptional potency of LHX3 by inhibiting the DNA binding affinity of the homeodomain, with some reduction in DNA binding specificity. © Springer 2005.