The LIM homeodomain (LIM-HD) proteins, which contain two tandem LIM domains followed by a homeodomain, are critical transcriptional regulators of embryonic development. The LIM domain is a conserved cysteine-rich zinc-binding motif found in LIM-HD and LMO (rhombotin or Ttg) proteins, cytoskeletal components, LIM kinases and other proteins. LIM domains are protein-protein interaction motifs, can inhibit binding of LIM-HD proteins to DNA and can negatively regulate LIM-HD protein function. How LIM domains exert these regulatory effects is not known. We have now isolated a new LIM-domain-binding factor, Ldb1, on the basis of its ability to interact with the LIM-HD protein Lhx1 (Lim1). High-affinity binding by Ldb1 requires paired LIM domains and is restricted to the related subgroup of LIM domains found in LIM-HD and LMO proteins. The highly conserved Xenopus Ldb protein XLdb1, interacts with Xlim-1, the Xenopus orthologue of Lhx1. When injected into Xenopus embryos, XLdb1 (or Ldb1) can synergize with Xlim-1 in the formation of partial secondary axes and in activation of the genes encoding goosecoid (gsc), chordin, NCAM and XCG7, demonstrating a functional as well as a physical interaction between the two proteins.