Transcriptional feedback loops are central to the generation and maintenance of circadian rhythms. In animal systems as well as Neurospora, transcriptional repression is believed to occur by catalytic post-translational events. We report here in the Drosophila model two different mechanisms by which the circadian repressor PERIOD (PER) inhibits CLOCK/CYCLE (CLK/CYC)-mediated transcription. First, PER is recruited to circadian promoters, which leads to the nighttime decrease of CLK/CYC activity. This decrease is proportional to PER levels on DNA, and PER recruitment probably occurs via CLK. Then CLK is released from DNA and sequestered in a strong, approximately 1:1 PER-CLK off-DNA complex. The data indicate that the PER levels bound to CLK change dynamically and are important for repression, first on-DNA and then off-DNA. They also suggest that these mechanisms occur upstream of post-translational events, and that elements of this two-step mechanism likely apply to mammals.