OVO controls germline and epidermis differentiation in flies and mice. In the Drosophila germline, alternative OVO-B and OVO-A isoforms have a common DNA-binding domain, but different N-termini. We show that these isoforms are transcription factors with opposite regulatory activities. Using yeast one-hybrid assays, we identified a strong activation domain within a common region and a counteracting repression domain within the OVO-A-specific region. In flies, OVO-B positively regulated the ovarian tumor promoter, while OVO-A was a negative regulator of the ovarian tumor and ovo promoters. OVO-B isoforms supplied ovo(+) function in the female germline and epidermis, while OVO-A isoforms had dominant-negative activity in both tissues. Moreover, elevated expression of OVO-A resulted in maternal-effect lethality while the absence of OVO-A resulted in maternal-effect sterility. Our data indicate that tight regulation of antagonistic OVO-B and OVO-A isoforms is critical for germline formation and differentiation.