The dioxin receptor is a ligand-regulated transcription factor that mediates signal transduction by dioxin and related environmental pollutants. The receptor belongs to the basic helix-loop-helix (bHLH)–Per-Arnt-Sim (PAS) family of factors, which, in addition to the bHLH motif, contain a PAS region of homology. Upon activation, the dioxin receptor dimerizes with the bHLH-PAS factor Arnt, enabling the receptor to recognize xenobiotic response elements in the vicinity of target genes. We have studied the role of the PAS domain in dimerization and DNA binding specificity of the dioxin receptor and Arnt by monitoring the abilities of the individual bHLH domains and different bHLH-PAS fragments to dimerize and bind DNA in vitro and recognize target genes in vivo. The minimal bHLH domain of the dioxin receptor formed homodimeric complexes, heterodimerized with full-length Arnt, and together with Arnt was sufficient for recognition of target DNA in vitro and in vivo. In a similar fashion, only the bHLH domain of Arnt was necessary for DNA binding specificity in the presence of the dioxin receptor bHLH domain. Moreover, the bHLH domain of the dioxin receptor displayed a broad dimerization potential, as manifested by complex formation with, e.g., the unrelated bHLH-Zip transcription factor USF. In contrast, a construct spanning the dioxin receptor bHLH domain and an N-terminal portion of the PAS domain failed to form homodimers and was capable of dimerizing only with Arnt. Thus, the PAS domain is essential to confer dimerization specificity of the dioxin receptor.