The rat Isl-1 gene encodes a protein involved in transcriptional regulation. This protein contains two copies of the cysteine-rich motif LIM domain in addition to a DNA-binding homeodomain. Chemical modification of the free sulphydryl group of a single cysteine residue at position 54 in the homeodomain can both stimulate and inhibit DNA-binding in vitro. Oxidation prevented DNA binding by the homeodomain but had no effect if the homeodomain was first bound to DNA. Replacement of this cysteine residue with serine abrogated sensitivity to oxidation-reduction changes and increased the DNA-binding activity of the homeodomain. These in vitro results suggest that transcriptional regulation through the Isl-1 protein might be modulated by the intracellular redox environment.