Msx2 is a homeobox gene with a regulatory role in inductive tissue interactions, including those that pattern the skull. We demonstrated previously that individuals affected with an autosomal dominant disorder of skull morphogenesis (craniosynostosis, Boston type) bear a mutated form of Msx2 in which a histidine is substituted for a highly conserved proline in position 7 of the N-terminal arm of the homeodomain (p148h). The mutation behaves as a dominant positive in transgenic mice. The location of the mutation in the N-terminal arm of the homeodomain, a region which in other homeodomain proteins plays a key part in protein-protein interactions, prompted us to undertake a yeast two hybrid screen for Msx2-interacting proteins. Here we present a functional analysis of one such protein, designated Miz1 (Msx-interacting-zinc finger). Miz1 is a zinc finger-containing protein whose amino acid sequence closely resembles that of the yeast protein, Nfi-1. Together these proteins define a new, highly conserved protein family. Analysis of Miz1 expression by Northern blot and in situ hybridization revealed a spatiotemporal pattern that overlaps that of Msx2. Further, Miz1 is a sequence specific DNA binding protein, and it can function as a positive-acting transcription factor. Miz1 interacts directly with Msx2 in vitro and enhances the DNA binding affinity of Msx2 for a functionally important element in the rat osteocalcin promoter. The p148h mutation in Msx2 augments the Miz1 effect on Msx2 DNA binding, suggesting a reason why this mutation behaves in vivo as a dominant positive, and providing a potential explanation of the craniosynostosis phenotype.