PKC phosphorylation regulates PITX2 DNA binding and transcriptional activity. Mutation of individual PKC sites demonstrates the functional regulation of PITX2 through phosphorylation. Immunoprecipitation of PITX2 and a PITX2 PKC mutant protein reveal specific in vivo phosphorylation by PKC in transfected cells. The transcriptional activity of PITX2 is negatively regulated by N-terminal phosphorylation and positively regulated by C-terminal phosphorylation. We demonstrate a mechanism of increased PITX2 transcriptional activation through protein interactions facilitated by phosphorylation of the PITX2 C-terminal tail. Phosphorylation of the PITX2 C terminus enhances the interaction with cellular factors. In corroboration with the PITX2 PKC functional studies, a newly identified C-terminal PITX2 mutation associated with Axenfeld-Rieger syndrome (ARS) demonstrates reduced phosphorylation. This mutation (PITX2 DeltaT1261) creates a frameshift mutation in codon 227 resulting in 11 novel amino acids downstream followed by premature truncation of the protein. Three PKC sites in the C-terminal tail and OAR domain are deleted, which results in decreased transcriptional activation. PITX2 DeltaT1261 is unable to interact with a cellular factor to synergistically activate transcription and demonstrates the first link of ARS with defective PITX2 protein interactions. Gene expression profiling of homozygous Pitx2 mutant mouse tissue reveals decreased Dlx2 expression as a potential molecular basis for developmental defects associated with ARS patients. Overall, phosphorylation imparts another level of regulation to the activity of the PITX2 homeodomain protein during development.