Recent findings suggest that Six3, a member of the evolutionarily conserved So/Six homeodomain family, plays an important role in vertebrate visual system development. However, little is known about the molecular mechanisms by which this function is accomplished. Although several members of the So/Six gene family interact with members of the eyes absent (Eya) gene family and function as transcriptional activators, Six3 does not interact with any known member of the Eya family. Here, we report that Grg4 and Grg5, mouse counterparts of the Drosophila transcriptional co-repressor Groucho, interact with mouse Six3 and its closely related member Six6, which may also be involved in vertebrate eye development. The specificity of the interaction was validated by co-immunoprecipitation of Six3 and Grg4 complexes from cell lines. We also show that the interaction between Six3 and Grg5 requires the Q domain of Grg5 and a conserved phenylalanine residue present in an eh1-like motif located in the Six domain of Six3. The pattern of Grg5 expression in the mouse ventral forebrain and developing optic vesicles overlapped that previously reported for Six3 and Six6. Using PCR, we identified a specific DNA motif that is bound by Six3 and we demonstrated that Six3 acts as a potent transcriptional repressor upon its interaction with Groucho-related members. We also demonstrated that this interaction is required for Six3 auto repression. The biological significance of this interaction in the retina and lens was assessed by overexpression experiments using either wild type full-length Six3 cDNA or a mutated form of this gene in which the interaction with Groucho proteins was disrupted. Overexpression of wild type Six3 by in vivo retroviral infection of newborn rat retinae led to an altered photoreceptor phenotype, while the in ovo electroporation of chicken embryos resulted in failure of lens placode invagination and production of delta-crystallin-negative cells within the placode. These specific alterations were not seen when the mutated form of Six3 cDNA was used in similar experimental approaches, indicating that Six3 interaction with Groucho proteins plays an essential role in vertebrate eye development.