The paired-type homeodomain transcription factor Otx2 is essential for forebrain and eye development. Severe ocular malformations in humans have recently been associated with heterozygous OTX2 mutations. To document the molecular defects in human mutants, Otx2 structural characterization was carried out. A collection of deletion and point mutants was created to perform transactivation, DNA binding, and subcellular localization analyses. Transactivation was ascribed to both N- and C-termini of the protein, and DNA binding to the minimal homeodomain, where critical amino acid residues were identified. Acute nuclear localization appeared controlled by a nuclear localization sequence located within the homeodomain which acts in conjunction with a novel nuclear retention domain that we unraveled located in the central part of the protein. This region, which is poorly conserved among Otx proteins, was also endowed with dominant negative activity suggesting that it might confer unique properties to Otx2. Molecular diagnostic of human mutant OTX2 proteins discriminates hypomorphic and loss of function mutations from other mutations that may not be relevant to ocular pathology.