Gene expression in the pharyngeal muscles of Caenorhabditis elegans is controlled in part by organ-specific signals, which in the myo-2 gene target a short DNA sequence termed the C subelement. To identify genes contributing to these signals, we performed a yeast one-hybrid screen for cDNAs encoding factors that bind the C subelement. One clone recovered was from daf-3, which encodes a Smad most closely related to vertebrate Smad4. We demonstrated that DAF-3 binds C subelement DNA directly and specifically using gel mobility shift and DNase1 protection assays. Mutation of any base in the sequence GTCTG interfered with binding in the gel mobility shift assay, demonstrating that this pentanucleotide is a core recognition sequence for DAF-3 binding. daf-3 is known to promote formation of dauer larvae and this activity is negatively regulated by TGFbeta-like signaling. To determine how daf-3 affects C subelement enhancer activity in vivo, we examined expression a gfp reporter controlled by a concatenated C subelement oligonucleotide in daf-3 mutants and other mutants affecting the TGFbeta-like signaling pathway controlling dauer formation. Our results demonstrate that wild-type daf-3 can repress C subelement enhancer activity during larval development and, like its dauer-promoting activity, daf-3's repressor activity is negatively regulated by TGFbeta-like signaling. We have examined expression of this gfp reporter in dauer larvae and have observed no daf-3-dependent repression of C activity. These results suggest daf-3 directly regulates pharyngeal gene expression during non-dauer development.