Freud-1/CC2D1A is a transcriptional repressor of the serotonin-1A receptor gene and was recently genetically linked to non-syndromic mental retardation. To identify new Freud-1 gene targets, data base mining for Freud-1 recognition sequences was done. A highly homologous intronic element (D2-DRE) was identified in the human dopamine-D2 receptor (DRD2) gene, and the role of Freud-1 in regulating the gene at this site was assessed. Recombinant Freud-1 bound specifically to the D2-DRE, and a major protein-D2-DRE complex was identified in nuclear extracts that was supershifted using Freud-1-specific antibodies. Endogenous Freud-1 binding to the D2-DRE in cells was detected using chromatin immunoprecipitation. The D2-DRE conferred strong repressor activity in transcriptional reporter assays that was dependent on the Freud-1 recognition sequence. In three different human cell lines, the level of Freud-1 protein was inversely related to DRD2 expression. Knockdown of endogenous Freud-1 using small interfering RNA resulted in an up-regulation of DRD2 RNA and binding sites, demonstrating a crucial role for Freud-1 in DRD2 regulation. A previously uncharacterized single nucleotide A/G polymorphism (rs2734836) was located adjacent to the D2-DRE and conferred allele-specific Freud-1 binding and repression, with the major G-allele having reduced activity. These studies demonstrate a key role for Freud-1 to regulate DRD2 expression and provide the first mechanistic insights into its transcriptional regulation. Allele-specific regulation of DRD2 expression by Freud-1 may possibly associate with psychiatric disorders or mental retardation.