Three-amino acid extension loop (TALE) homeobox proteins are highly conserved transcription regulators. We report that two members of this family, Meis2 and TGIF, which frequently have overlapping consensus binding sites on complementary DNA strands in opposite orientations, can function competitively. For example, in the D1(A) gene, which encodes the predominant dopamine receptor in the striatum, Meis2 and TGIF bind to the activator sequence ACT (-1174 to -1154) and regulate transcription differentially in a cell type-specific manner. Among the five cloned splice variants of Meis2, isoforms Meis2a-d activate the D1(A) promoter in most cell types tested, whereas TGIF competes with Meis2 binding to DNA and represses Meis2-induced transcription activation. Consequently, Meis2 cannot activate the D1(A) promoter in a cell that has abundant TGIF expression. The Meis2 message is highly co-localized with the D1(A) message in adult striatal neurons, whereas TGIF is barely detectable in the adult brain. Our observations provide in vitro and in vivo evidence that Meis2 and TGIF differentially regulate their target genes. Thus, the delicate ratio between Meis2 and TGIF expression in a given cell type determines the cell-specific expression of the D1(A) gene. We also found that splice variant Meis2e, which has a truncated homeodomain, cannot bind to the D1(A) ACT sequence or activate transcription. However, Meis2e is an effective dominant negative regulator by blocking Meis2d-induced transcription activation. Thus, truncated homeoproteins with no DNA binding domains can have important regulatory functions.