Sensory organ formation in Drosophila is activated by proneural genes that encode basic-helix-loop-helix (bHLH) transcription factors. These genes are antagonized by hairy and other proline-bHLH proteins. hairy has not been shown to bind to DNA and has been proposed to form inactive heterodimers with proneural activator proteins. Here, we show that hairy does bind to DNA and has novel DNA-binding activity: hairy prefers a noncanonical site, CACGCG, although it also binds to related sites. Mutation of a single CACGCG site in the achaete (ac) proneural gene blocks hairy-mediated repression of ac transcription in cultured Drosophila cells. Moreover, the same CACGCG mutation in an ac minigene transformed into Drosophila creates ectopic sensory hair organs like those seen in hairy mutants. Together these results indicate that hairy represses sensory organ formation by directly repressing transcription of the ac proneural gene.