Members of the spalt family of zinc finger-containing proteins have been implicated in development and disease. However, very little is known about the molecular function of spalt proteins. We have used biochemical approaches to characterize functional domains of two chick spalt homologs, csal1 and csal3. We show that csal1 and csal3 proteins repress transcription and that they can interact with each other. Furthermore, we found that truncated chick spalt proteins, similar to the truncated spalt protein expressed in the human congenital disorder Townes-Brocks syndrome, affect the nuclear localization of full-length spalt. Our findings have implications for the understanding of Townes-Brocks syndrome and the role of spalt genes in normal development. We propose that truncated spalt can exert a dominant negative effect and is able to interfere with the correct function of full-length protein, by causing its displacement from the nucleus. This could affect the transcriptional repressor activity of spalt and DNA binding. Spalt protein truncations could also affect the function of other spalt family members in various tissues.