The nuclear LIM-only protein 4 (LMO4) is upregulated in breast cancer, especially estrogen receptor-negative tumors, and its overexpression in mice leads to hyperplasia and tumor formation. Here, we show that deletion of LMO4 in the mammary glands of mice leads to impaired lobuloalveolar development due to decreased epithelial cell proliferation. With the goal of discovering potential LMO4-target genes, we also developed a conditional expression system in MCF-7 cells for both LMO4 and a dominant negative (DN) form of its co-regulator, cofactor of LIM domains (Clim/Ldb/Nli). We then used DNA microarrays to identify genes responsive to LMO4 and DN-Clim upregulation. One of the genes common to both data sets was bone morphogenic protein 7 (BMP7), whose expression is also significantly correlated with LMO4 transcript levels in a large dataset of human breast cancers, suggesting that BMP7 is a bona fide target gene of LMO4 in breast cancer. Inhibition of BMP7 partially blocks the effects of LMO4 on apoptosis, indicating that BMP7 mediates at least some functions of LMO4. Gene transfer studies show that LMO4 regulates the BMP7 promoter, and chromatin immunoprecipitation studies show that LMO4 and its cofactor Clim2 are recruited to the BMP7 promoter. Furthermore, we demonstrate that HDAC2 recruitment to the BMP7 promoter is inhibited by upregulation of LMO4 and that HDAC2 knockdown upregulates the promoter. These studies suggest a novel mechanism of action for LMO4: LMO4, Clim2 and HDAC2 are part of a transcriptional complex, and increased LMO4 levels can disrupt the complex, leading to decreased HDAC2 recruitment and increased promoter activity.