Transcriptional repression by sequence-specific DNA binding factors is mediated by the recruitment of a corepressor complex to the promoter region. The NK-3 homeodomain protein is a transcriptional repressor that recruits the nuclear protein kinase, homeodomain interacting protein kinase 2 (HIPK2). Here we show that HIPK2 is a component of a corepressor complex containing Groucho and a histone deacetylase complex. Groucho, like HIPK2, acts as a corepressor for NK-3 and binds to NK-3 and HIPK2. Moreover, HIPK2 appears to regulate the corepressor activity of Groucho. Transcriptional repression by NK-3 and Groucho is relieved by the histone deacetylase inhibitor trichostatin A, and both NK-3 and Groucho directly interact with the histone deacetylase HDAC1 that is associated with mSin3A in vivo. Recruitment of the histone deacetylase complex by NK-3 decreases the acetylated histones that are associated with the target gene promoter. These results indicate that NK-3 represses transcription by recruiting a complex containing Groucho and a histone deacetylase complex that leads to histone modification on chromatin and suggest that HIPK2 may play a regulatory role in the corepressor complex formation.