The plant hormone auxin controls many aspects of development and acts in part by inducing expression of various genes. Arabidopsis thaliana semidominant shy2 (short hypocotyl) mutations cause leaf formation in dark-grown plants, suggesting that SHY2 has an important role in regulating development. Here we show that the SHY2 gene encodes IAA3, a previously known member of the Aux/IAA family of auxin-induced genes. Dominant shy2 mutations cause amino acid changes in domain II, conserved among all members of this family. We isolated loss-of-function shy2 alleles including a putative null mutation. Gain-of-function and loss-of-function shy2 mutations affect auxin-dependent root growth, lateral root formation, and timing of gravitropism, indicating that SHY2/IAA3 regulates multiple auxin responses in roots. The phenotypes suggest that SHY2/IAA3 may activate some auxin responses and repress others. Models invoking tissue-specificity, feedback regulation, or control of auxin transport may explain these results.