BACKGROUND: Members of the NET subfamily of zinc-finger proteins are related to the Sp-family of transcription factors and are required during embryogenesis. In particular, Nlz1/Znf703 and Nlz2/Znf503 are required for formation of rhombomere 4 of the vertebrate hindbrain. While NET family proteins have been hypothesized to regulate transcription, it remains unclear if they function as activators or repressors of transcription. RESULTS: Here we demonstrate that Nlz proteins repress transcription both in cell lines and in developing zebrafish embryos. We first use standard cell culture-based reporter assays to demonstrate that Nlz1/Znf703 represses transcription of a luciferase reporter in four different cell lines. Structure-function analyses and pharmacological inhibition further reveal that Nlz1-mediated repression requires histone deacetylase activity. We next generate a stable transgenic zebrafish reporter line to demonstrate that Nlz1 promotes histone deacetylation at the transgenic promoter and repression of transgene expression during embryogenesis. Lastly, taking a genetic approach we find that endogenous Nlz proteins are required for formation of hindbrain rhombomere 4 during zebrafish embryogenesis by repressing expression of non-rhombomere 4 genes. CONCLUSIONS: We conclude that Nlz1/Znf703 acts as a repressor of transcription and hypothesize that other NET family members function in a similar manner.