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The Dachshund (dac) gene, initially cloned as a dominant inhibitor of the Drosophila hyperactive EGFR mutant ellipse, encodes a key component of the cell fate determination pathway involved in Drosophila eye development. Analysis of more than 2,200 breast cancer samples showed improved survival by some 40 months in patients whose tumors expressed DACH1. Herein, DACH1 and estrogen receptor-alpha (ERalpha) expressions were inversely correlated in human breast cancer. DACH1 bound and inhibited ERalpha function. Nuclear DACH1 expression inhibited estradiol (E(2))-induced DNA synthesis and cellular proliferation. DACH1 bound ERalpha in immunoprecipitation-Western blotting, associated with ERalpha in chromatin immunoprecipitation, and inhibited ERalpha transcriptional activity, requiring a conserved DS domain. Proteomic analysis identified proline, glutamic acid, and leucine rich protein 1 (PELP1) as a DACH1-binding protein. The DACH1 COOH terminus was required for binding to PELP1. DACH1 inhibited induction of ERalpha signaling. E(2) recruited ERalpha and disengaged corepressors from DACH1 at an endogenous ER response element, allowing PELP1 to serve as an ERalpha coactivator. DACH1 expression, which is lost in poor prognosis human breast cancer, functions as an endogenous inhibitor of ERalpha function.