Higher eukaryote genomes contain repetitive DNAs, often concentrated in transcriptionally inactive heterochromatin. Although repetitive DNAs are not typically considered as regulatory elements that directly affect transcription, they can contain binding sites for some transcription factors. Here, we demonstrate that binding of the transcription factor CCAAT/enhancer-binding protein alpha (C/EBPalpha) to the mouse major alpha-satellite repetitive DNA sequesters C/EBPalpha in the transcriptionally inert pericentromeric heterochromatin. We find that this sequestration reduces the transcriptional capacity of C/EBPalpha. Functional sequestration of C/EBPalpha was demonstrated by experimentally reducing C/EBPalpha binding to the major alpha-satellite DNA, which elevated the concentration of C/EBPalpha in the non-heterochromatic subcompartment of the cell nucleus. The reduction in C/EBPalpha binding to alpha-satellite DNA was induced by the co-expression of the transcription factor Pit-1, which removes C/EBPalpha from the heterochromatic compartment, and by the introduction of an altered-specificity mutation into C/EBPalpha that reduces binding to alpha-satellite DNA but permits normal binding to sites in some gene promoters. In both cases the loss of alpha-satellite DNA binding coincided with an elevation in the binding of C/EBPalpha to a promoter and an increased transcriptional output from that promoter. Thus, the binding of C/EBPalpha to this highly repetitive DNA reduced the amount of C/EBPalpha available for binding to and regulation of this promoter. The functional sequestration of some transcription factors through binding to repetitive DNAs may represent an underappreciated mechanism controlling transcription output.