A Dpp activity gradient specifies multiple thresholds of gene expression in the dorsal ectoderm of the early embryo. Some of these thresholds depend on a putative repressor, Brinker, which is expressed in the neurogenic ectoderm in response to the maternal Dorsal gradient and Dpp signaling. Here we show that Brinker is a sequence-specific transcriptional repressor. It binds the consensus sequence, TGGCGc/tc/t, and interacts with the Groucho corepressor through a conserved sequence motif, FKPY. An optimal Brinker binding site is contained within an 800-bp enhancer from the tolloid gene, which has been identified as a genetic target of the Brinker repressor. A tolloid-lacZ transgene containing point mutations in this site exhibits an expanded pattern of expression, suggesting that Brinker directly represses tolloid transcription. We discuss other examples of transcriptional repressors constraining the activities of signaling pathways.