LIM homeodomain transcription factors regulate many aspects of development in multicellular organisms. Such factors contain two LIM domains in their amino terminus and a DNA-binding homeodomain. To better understand the mechanism of gene regulation by these proteins, we studied the role of the LIM domains in DNA interaction by Lhx3, a protein that is essential for pituitary development and motor neuron specification in mammals. By site selection, we demonstrate that Lhx3 binds at high affinity to an AT-rich consensus DNA sequence that is similar to sequences located within the promoters of some pituitary hormone genes. The LIM domains reduce the affinity of DNA binding by Lhx3, but do not affect the specificity. Lhx3 preferentially binds to the consensus site as a monomer with minor groove contacts. The Lhx3 binding consensus site confers Lhx3-dependent transcriptional activation to heterologous promoters. Further, DNA molecules containing the consensus Lhx3 binding site are bent to similar angles in complexes containing either wild type Lhx3 or Lhx3 lacking LIM domains. These data are consistent with Lhx3 having the properties of an architectural transcription factor. We also propose that there are distinct classes of LIM homeodomain transcription factors in which the LIM domains play different roles in modulating interactions with DNA sites in target genes.