Transcriptional co-repressors of the Groucho/TLE family are important regulators of development in many species. A subset of Groucho/TLE family members that lack the C-terminal WD40 domains have been proposed to act as dominant-negative regulators of Groucho/TLE proteins, yet such a role has not been conclusively proven. Through a mutant screen for genes controlling a left/right asymmetric cell fate decision in the nervous system of the nematode C. elegans, we have retrieved loss-of-function alleles in two distinct loci that display identical phenotypes in neuronal fate specification and in other developmental contexts. Using the novel technology of whole-genome sequencing, we find that these loci encode the C. elegans ortholog of Groucho, UNC-37, and, surprisingly, a short Groucho-like protein, LSY-22, that is similar to truncated Groucho proteins in other species. Besides their phenotypic similarities, unc-37 and lsy-22 show genetic interactions and UNC-37 and LSY-22 proteins also physically bind to each other in vivo. Our findings suggest that rather than acting as negative regulators of Groucho, small Groucho-like proteins may promote Groucho function. We propose that Groucho-mediated gene regulatory events involve heteromeric complexes of distinct Groucho-like proteins.