An evolutionarily conserved vertebrate homologue of the Drosophila NK-3 homeodomain gene bagpipe, Nkx3-1, is expressed in vascular and visceral mesoderm-derived muscle tissues and may influence smooth muscle cell differentiation. Nkx3-1 was evaluated for mediating smooth muscle gamma-actin (SMGA) gene activity, a specific marker of smooth muscle differentiation. Expression of mNkx3-1 in heterologous CV-1 fibroblasts was unable to elicit SMGA promoter activity but required the coexpression of serum response factor (SRF) to activate robust SMGA transcription. A novel complex element containing a juxtaposed Nkx-binding site (NKE) and an SRF-binding element (SRE) in the proximal promoter region was found to be necessary for the Nkx3-1/SRF coactivation of SMGA transcription. Furthermore, Nkx3-1 and SRF associate through protein-protein interactions and the homeodomain region of Nkx3-1 facilitated SRF binding to the complex NKE.SRE. Mutagenesis of Nkx3-1 revealed an inhibitory domain within its C-terminal segment. In addition, mNkx3-1/SRF cooperative activity required an intact Nkx3-1 homeodomain along with the MADS box of SRF, which contains DNA binding and dimerization structural domains, and the contiguous C-terminal SRF activation domain. Thus, SMGA is a novel target for Nkx3-1, and the activity of Nkx3-1 on the SMGA promoter is dependent upon SRF.