Dlx3 (Distal-less 3) is a homeobox-containing transcription factor required for normal placental development in mice. Here we demonstrate that Dlx3 interacts with Smad6, a member of a larger family of transcriptional regulators generally thought to regulate transforming growth factor beta/bone morphogenetic protein signaling. Immunocytochemical and immunoprecipitation studies demonstrate overlapping nuclear localization and physical interaction between Dlx3 and Smad6 in human choriocarcinoma cells and in differentiated trophoblasts from human placenta. In vitro protein interaction studies mapped the Smad6 interaction domain within Dlx3 to residues 80-163, a region of Dlx3 that includes a portion of the homeodomain. Dlx3 and Dlx4 share homology within this region, and Dlx4 was also found to bind Smad6. Using the Esx1 gene promoter as a model for a Dlx3-responsive gene, studies demonstrate two near consensus Dlx3 binding sites within the proximal 2.3 kb of the transcription start site. Interestingly, binding of Dlx3 to one of these two sites was inhibited by interaction with Smad6. Consistent with this result, expression of an Esx1 promoter luciferase reporter was increased by overexpression of Dlx3; this effect was reversed with co-expression of Smad6. Further, small interference RNA-mediated knockdown of endogenous Smad6 increased Dlx3-dependent expression of the Esx1 gene promoter. Thus, Smad6 appears to functionally interact with Dlx3, altering the ability of Dlx3 to bind target gene promoters. Smad6 appears to play a modulatory role in the regulation of Dlx3-dependent gene transcription within placental trophoblasts.