Pax genes encode transcription factors known to play crucial roles during the development of specific embryonic tissues. In humans and mice, several abnormalities have been linked to deficiencies in Pax gene dosage, indicating that normal development is particularly sensitive to the level of Pax gene expression. Despite these facts, relatively little is known about how these proteins act as transcriptional regulators, In this study we define the transactivation domains of murine Pax-2, an essential factor in kidney organogenesis. Within the COOH terminus of Pax-2, amino acids 279-373 are essential for transactivation. However, this region alone is insufficient for full transactivation when fused to the paired domain alone or to a heterologous DNA binding domain. Mutation or deletion of the conserved octapeptide sequence results in increased transactivation by Pax proteins. The octapeptide-mediated repression is also seen within a heterologous context using the GAL4 DNA binding domain. Thus transactivation by Pax-2 relies upon several regions within the COOH terminus and is down-modulated by the octapeptide element.