Recently, a new class of homeobox genes has been identified, called LIM-homeobox genes. These genes encode proteins which have two tandemly repeated cysteine motifs, referred to as LIM domains, in addition to a homeodomain. In addition, proteins with only LIM domains have been described but the function of the LIM domain is unknown. We have analysed the function of LIM domains using Isl-1 as a representative LIM-homeodomain protein. Employing protein prepared in bacterial cells, we show that the presence of the LIM domain in Isl-1 inhibits binding of the homeodomain to its DNA target. This in vitro inhibition can be released either by denaturation/renaturation of the protein or by truncation of the LIM domains. A similar inhibition is observed in vivo using reporter constructs. In addition we show that LIM domains in a chimeric protein can inhibit binding of the Ubx homeodomain to its target. The ability of LIM domains to inhibit DNA binding by the homeodomain provides a possible basis for negative regulation of LIM-homeodomain proteins in vivo.