Signaling by decapentaplegic (Dpp), a Drosophila member of the transforming growth factor (TGF) beta superfamily of growth factors, has recently been shown to activate targets such as vestigial (vg) indirectly through negative regulation of brinker (brk). Here we show that the Brk protein functions as a repressor by binding to Dpp response elements. The Brk DNA binding activity was localized to an amino-terminal region containing a putative homeodomain. Brk bound to a Dpp response element of the Ultrabithorax (Ubx) midgut enhancer at a sequence that overlaps a binding site for the Smad protein, Mothers Against Dpp (Mad). Furthermore, Brk was able to compete with Mad for occupancy of this binding site. This recognition of overlapping binding sites provides a potential explanation for why the G/C-rich Mad binding site consensus differs the Smad3/Smad4 binding site consensus. We also found that the Dpp response element from Ubx was more sensitive than the vg quadrant enhancer to repression by Brk. This difference correlates with short-range activation of Ubx by Dpp in the visceral mesoderm, whereas vg exhibits a long-range response to Dpp in the wing imaginal disc, indicating that Brk binding sites may play a critical role in limiting thresholds for activation by Dpp. Finally, we provide evidence that Brk is capable of functioning as an active repressor. Thus, whereas Brk and Mad compete for regulation of Ubx and vg, Brk may regulate other Dpp targets without direct involvement of Mad.