Specificity in transcriptional regulation lies in a large part in the specificity of DNA binding by transcription factors. One group of transcription factors which are of great interest for studying transcriptional specificity is the Pax/Homeodomain (Pax/HD) proteins which contain two conserved DNA binding domains, a paired domain (PD) and a Paired-class homeodomain (HD). The Pax/HD proteins can bind to at least three types of specific DNA sequences: the PD binding sites, the dimeric HD binding sites and a composite HD and PD binding site. We propose that Pax/HD proteins regulate different subsets of their target genes through modular binding to one of these three specific sequences. We show that, in a tissue culture system, a member of the Pax/HD family, Paired, is able to activate transcription after binding through either its PD or its HD. The transactivation mediated by one domain does not require DNA binding of the other domain. Furthermore, binding sites specific for the PD of Paired are sufficient to mediate embryonic expression of a reporter gene in a paired-like pattern. The expression of the reporter gene is dependent on wild type paired function and, in a prd mutant background, it can be rescued by an exogenous paired gene encoding a protein whose HD is not able to bind to DNA. Finally, we show that the Paired protein uses differently its C-terminal activation domain when transactivation is mediated through its PD or its HD. These results and recent evidence from other Pax/HD proteins strongly suggest that this class of proteins is able to achieve specific and modular transcriptional regulation through its multiple DNA binding domains.