The EID family members, i.e., E1A-like inhibitor of differentiation-1 (EID-1) and EID-1-like inhibitor of differentiation-2 (EID-2), were identified as negative regulators of cellular differentiation. EID-1 seems to inhibit differentiation by blocking histone acetyltransferase activity and EID-2 possibly inhibits differentiation through binding to class I histone deacetylases (HDACs). Here, we report a novel inhibitor of differentiation exhibiting homology with EID-2 termed EID-3 (EID-2-like inhibitor of differentiation-3). Like EID-2, EID-3 inhibited MyoD- and GRalpha-dependent transcription and blocked muscle differentiation in cultured cells by binding to class I HDACs. Unlike that of EID-2, the C-terminus, but not the N-terminus, of EID-3 was required for nuclear localization. EID-3 formed a homodimer or heterodimer with EID-2. These results suggest that EID-3 inhibits differentiation by blocking transcription as a complex in cells.