TG-interacting factor (TGIF) is a transcriptional repressor, which represses transcription by binding directly to DNA or interacts with transforming growth factor beta (TGF beta)-activated Smads, thereby repressing TGF beta-responsive gene expression. Mutation of TGIF in humans causes holoprosencephaly, a severe genetic disorder affecting craniofacial development. Searching human expressed sequence tag data bases revealed the presence of clones encoding a TGIF-related protein (TGIF2), which contains two regions of high sequence identity with TGIF. Here we show that, like TGIF, TGIF2 recruits histone deacetylase, but in contrast to TGIF, is unable to interact with the corepressor CtBP. TGIF2 and TGIF have very similar DNA-binding homeodomains, and TGIF2 represses transcription when bound to DNA via a TGIF binding site. TGIF2 interacts with TGF beta-activated Smads and represses TGF beta-responsive transcription. TGIF2 appears to be a context-independent transcriptional repressor, which can perform similar functions to TGIF and may play a role in processes, which, when disrupted by mutations in TGIF, cause holoprosencephaly.