The sensory nervous system of C. elegans comprises cells with varied molecular and functional characteristics and is, therefore, a powerful model for understanding mechanisms that generate neuronal diversity. We report here that VAB-3, a C. elegans homolog of the homeodomain-containing protein Pax6, has opposing functions in regulating expression of a specific chemosensory fate. A homeodomain-only short isoform of VAB-3 is expressed in BAG chemosensory neurons, where it promotes gene expression and cell function. In other cells, a long isoform of VAB-3 comprised of a Paired homology domain and a homeodomain represses expression of ETS-5, a transcription factor required for expression of BAG fate. Repression of ets-5 requires the Eyes Absent homolog EYA-1 and the Six-class homeodomain protein CEH-32. We determined sequences that mediate high-affinity binding of ETS-5, VAB-3, and CEH-32. The ets-5 locus is enriched for ETS-5-binding sites but lacks sequences that bind VAB-3 and CEH-32, suggesting that these factors do not directly repress ets-5 expression. We propose that a promoter-selection system together with lineage-specific expression of accessory factors allows VAB-3/Pax6 to either promote or repress expression of specific cell fates in a context-dependent manner.