The Forkhead box (FOX) family consists of at least 19 subgroups of transcription factors which are characterized by the presence of an evolutionary conserved 'forkhead' or 'winged-helix' DNA-binding domain. Despite having a conserved core DNA binding domain, FOX proteins display remarkable functional diversity and are involved in many developmental and cell specific processes. In the present study, we focus on a poorly characterized member of the Forkhead family, Foxi3, which plays a critical role in the development of the inner ear and jaw. We show that Foxi3 contains at least two important functional domains, a nuclear localization sequence (NLS) and a C-terminal transactivation domain (TAD), and that it directly binds its targets in a sequence specific manner. We also show that the transcriptional activity of Foxi3 is regulated by phosphorylation, and that the activity of Foxi3 can be attenuated by its physical interaction with the protein phosphatase 2A (PP2A) complex.