The homeobox gene Hesx1/HESX1 has been implicated in the establishment of anterior pattern in the central nervous system (CNS) in a number of vertebrate species. Its role in pituitary development has been documented through loss-of-function studies in the mouse. A homozygous missense point mutation resulting in a single amino acid substitution, Arg160Cys (R160C), is associated with a heritable form of the human condition of septo-optic dysplasia (SOD). We have examined the phenotype of affected members in this pedigree in more detail and demonstrate for the first time a genetic basis for midline defects associated with an undescended or ectopic posterior pituitary. A similar structural pituitary abnormality was observed in a second patient heterozygous for another mutation in HESX1, Ser170Leu (S170L). Association of S170L with a pituitary phenotype may be a direct consequence of the HESX1 mutation since S170L is also associated with a dominant familial form of pituitary disease. However, a third mutation in HESX1, Asn125Ser (N125S), occurs at a high frequency in the Afro-Caribbean population and may therefore reflect a population-specific polymorphism. To investigate the molecular basis for these clinical phenotypes, we have examined the impact of these mutations on the regulatory functions of HESX1. We show that Hesx1 is a promoter-specific transcriptional repressor with a minimal 36 amino acid repression domain which can mediate promoter-specific repression by suppressing the activity of homeodomain-containing activator proteins. Mutations in HESX1 associated with pituitary disease appear to modulate the DNA-binding affinity of HESX1 rather than its transcriptional activity. Wild-type HESX1 binds a dimeric homeodomain site with high affinity (K_d 31 nM) whilst HESX1(S170L) binds with a 5-fold lower activity (K_d 150 nM) and HESX1(R160C) does not bind at all. Although HESX1(R160C) has only been shown to be associated with the SOD phenotype in children homozygous for the mutation, HESX1(R160C) can inhibit DNA binding by wild-type HESX1 both in vitro and in vivo in cell culture. This dominant negative activity of HESX1(R160C) is mediated by the Hesx1 repression domain, supporting the idea that the repression domain is implicated in interactions between homeodomain proteins. Our data suggest a possible molecular paradigm for the dominant inheritance observed in some pituitary disorders.