The transcription factor, Vnd, is a dual regulator that specifies ventral neuroblast identity in Drosophila by both repressing and activating target genes. Vnd and its homologues have a conserved amino acid sequence, the Nk-2 box or Nk specific domain, as well a conserved DNA-binding homeodomain and an EhI-type Groucho interaction domain. However, the function of the conserved Nk-2 box has not been fully defined. To explore its function, we deleted the Nk-2 box and compared the regulatory activity of mutant Vnd in transgenic over-expression assays to that of the wild-type protein. We were unable to assign regulatory activity to the Nk-2 box using an over-expression assay, because the mutant protein activated expression of endogenous Vnd, masking a requirement for the Nk-2 box. However, in transgenic rescue assays, Vnd lacking the Nk-2 box repressed ind expression at 30% lower levels than the wild-type protein. Moreover, in transient transfection assays using Gal4 DNA-binding domain-Vnd chimeras, the repression activity of Vnd lacking the Nk-2 box was compromised. Because Vnd represses target gene expression in conjunction with Groucho, we asked whether the Nk-2 box affects Vnd's ability to interact with this co-repressor. Vnd lacking the Nk-2 box binds Groucho 30% less efficiently than wild-type Vnd in co-immunoprecipitations. These data suggest that the Nk-2 box contributes to the repression activity of Vnd by stabilizing its interaction with the co-repressor, Groucho.