DREAM, an EF-hand protein, associates with and modulates the activity of presenilins and Kv4 potassium channels in neural and cardiac tissues and represses prodynorphin and c-fos gene expression by binding to DNA response elements in these genes. Information concerning the metal-binding properties of DREAM and the consequences of metal binding on protein structure are important in understanding how this protein functions in cells. We now show that DREAM binds 1 mol of calcium/mol of protein with relatively high affinity and another 3 mol of calcium with lower affinity. DREAM binds 1 mol of magnesium/mol of protein. DREAM, pre-loaded with 1 mol of calcium, binds 1 mol of magnesium, thus demonstrating that the magnesium-binding site is distinct from the high affinity calcium-binding site. Analysis of metal binding to mutant DREAM protein constructs localizes the high affinity calcium-binding site and the magnesium-binding site to EF-hands 3 or 4. Binding of calcium but not magnesium changes the conformation, stability, and alpha-helical content of DREAM. Calcium, but not magnesium, reduces the affinity of apo-DREAM for specific DNA response elements in the prodynorphin and c-fos genes. We conclude that DREAM binds calcium and magnesium and that calcium, but not magnesium, modulates DREAM structure and function.