Hox genes encode homeodomain-containing transcriptional regulators that function during development to specify positional identity along embryonic axes. The homeodomain is composed of a flexible N-terminal arm and three alpha helices, and it differentially binds DNA. A number of homeodomains recognize sites containing a TAAT core motif. The product of the murine Hoxd-4 (Hox-4.2) gene functions in a positive autoregulatory fashion in P19 cells that is dependent on two TAAT motifs in the Hoxd-4 promoter. This effect is specific in that murine HOXA-1 (HOX-1.6) is unable to activate transcription through the Hoxd-4 autoregulatory element. Here we show that this is due to an inability of the HOXA-1 homeodomain to bind a HOXD-4 recognition site effectively. We have produced chimeras between HOXD-4 and HOXA-1 to map specific residues responsible for this functional difference. When positions 2 and 3 in the N-terminal arm of HOXA-1 were converted to HOXD-4 identity, both strong DNA binding and transcriptional activation were rescued. This substitution appears to confer an increased DNA-binding ability on the HOXA-1 homeodomain, since we were unable to detect a high-affinity recognition sequence for HOXA-1 in a randomized pool of DNA probes. The contribution of position 3 to DNA binding has been implicated by structural studies, but this is the first report of the importance of position 2 in regulating homeodomain-DNA interactions. Additionally, specific homeodomain residues that confer major differences in DNA binding and transcriptional activation between Hox gene products have not been previously determined. Identity at these two positions is generally conserved among paralogs but varies between Hox gene subfamilies. As a result, these residues may be important for the regulation of target gene expression by specific Hox products.