Abstract Background Members of the NET subfamily of zinc-finger proteins are related to the Sp-family of transcription factors and are required during embryogenesis. In particular, Nlz1/Znf703 and Nlz2/Znf503 are required for formation of rhombomere 4 of the vertebrate hindbrain. While NET family proteins have been hypothesized to regulate transcription, it remains unclear if they function as activators or repressors of transcription. Results Here we demonstrate that Nlz proteins repress transcription both in cell lines and in developing zebrafish embryos. We first use standard cell culture-based reporter assays to demonstrate that Nlz1/Znf703 represses transcription of a luciferase reporter in four different cell lines. Structure-function analyses and pharmacological inhibition further reveal that Nlz1-mediated repression requires histone deacetylase activity. We next generate a stable transgenic zebrafish reporter line to demonstrate that Nlz1 promotes histone deacetylation at the transgenic promoter and repression of transgene expression during embryogenesis. Lastly, taking a genetic approach we find that endogenous Nlz proteins are required for formation of hindbrain rhombomere 4 during zebrafish embryogenesis by repressing expression of non-rhombomere 4 genes. Conclusion We conclude that Nlz1/Znf703 acts as a repressor of transcription and hypothesize that other NET family members function in a similar manner.