LIM homeodomain and LIM-only (LMO) transcription factors contain two tandemly arranged Zn2+-binding LIM domains capable of mediating protein-protein interactions. These factors have restricted patterns of expression, are found in invertebrates as well as vertebrates, and are required for cell type specification in a variety of developing tissues. A recently identified, widely expressed protein, NLI, binds with high affinity to the LIM domains of LIM homeodomain and LMO proteins in vitro and in vivo. In this study, a 38-amino-acid fragment of NLI was found to be sufficient for the association of NLI with nuclear LIM domains. In addition, NLI was shown to form high affinity homodimers through the amino-terminal 200 amino acids, but dimerization of NLI was not required for association with the LIM homeodomain protein Lmxl. Chemical cross-linking analysis revealed higher-order complexes containing multiple NLI molecules bound to Lmx1, indicating that dimerization of NLI does not interfere with LIM domain interactions. Additionally, NLI formed complexes with Lmx1 on the rat insulin I promoter and inhibited the LIM domain-dependent synergistic transcriptional activation by Lmx1 and the basic helix-loop-helix protein E47 from the rat insulin I minienhancer. These studies indicate that NLI contains at least two functionally independent domains and may serve as a negative regulator of synergistic transcriptional responses which require direct interaction via LIM domains. Thus, NLI may regulate the transcriptional activity of LIM homeodomain proteins by determining specific partner interactions.