NKX2.1 is a homeodomain transcription factor that controls development of the brain, lung, and thyroid. In the lung, Nkx2.1 is expressed in a proximo-distal gradient and activates specific genes in phenotypically distinct epithelial cells located along this axis. The mechanisms by which NKX2.1 controls its target genes may involve interactions with other transcription factors. We examined whether NKX2.1 interacts with members of the winged-helix/forkhead family of FOXA transcription factors to regulate two spatially and cell type-specific genes, SpC and Ccsp. The results show that NKX2.1 interacts physically and functionally with FOXA1. The nature of the interaction is inhibitory and occurs through the NKX2.1 homeodomain in a DNA-independent manner. On SpC, which lacks a FOXA1 binding site, FOXA1 attenuates NKX2.1-dependent transcription. Inhibition of FOXA1 by small interfering RNA increased SpC mRNA, demonstrating the in vivo relevance of this finding. In contrast, FOXA1 and NKX2.1 additively activate transcription from Ccsp, which includes both NKX2.1 and FOXA1 binding sites. In electrophoretic mobility shift assays, the GST-FOXA1 fusion protein interferes with the formation of NKX2.1 transcriptional complexes by potentially masking the latter's homeodomain DNA binding function. These findings suggest a novel mode of selective gene regulation by proximo-distal gradient distribution of and functional interactions between forkhead and homeodomain transcription factors.