During heart development, chamber myocardium forms locally from the embryonic myocardium of the tubular heart. The atrial natriuretic factor (ANF) gene is specifically expressed in this developing chamber myocardium and is one of the first hallmarks of chamber formation. We investigated the regulatory mechanism underlying this selective expression. Transgenic analysis shows that a small fragment of the ANF gene is responsible for the developmental pattern of endogenous ANF gene expression. Furthermore, this fragment is able to repress cardiac troponin I (cTnI) promoter activity selectively in the embryonic myocardium of the atrioventricular canal (AVC). In vivo inactivation of a T-box factor (TBE)- or NK2-homeobox factor binding element (NKE) within the ANF fragment removed the repression in the AVC without affecting its chamber activity. The T-box family member Tbx2, encoding a transcriptional repressor, is expressed in the embryonic myocardium in a pattern mutually exclusive to ANF, thus suggesting a role in the suppression of ANF. Tbx2 formed a complex with Nkx2.5 on the ANF TBE-NKE, and was able to repress ANF promoter activity. Our data provide a potential mechanism for chamber-restricted gene activity in which the cooperative action of Tbx2 and Nkx2.5 inhibits expression in the AVC.