RIGHTS : This article is licensed under the BioMed Central licence at http://www.biomedcentral.com/about/license which is similar to the 'Creative Commons Attribution Licence'. In brief you may : copy, distribute, and display the work; make derivative works; or make commercial use of the work - under the following conditions: the original author must be given credit; for any reuse or distribution, it must be made clear to others what the license terms of this work are. ; Abstract Background Group B Sox domain transcription factors play important roles in metazoan central nervous system development. They are, however, difficult to study as mutations often have pleiotropic effects and other Sox family members can mask phenotypes due to functional compensation. In Drosophila melanogaster, the Sox gene Dichaete is dynamically expressed in the embryonic CNS, where it is known to have functional roles in neuroblasts and the ventral midline. In this study, we use inducible dominant negative proteins in combination with ChIP, immunohistochemistry and genome-wide expression profiling to further dissect the role of Dichaete in these two tissues. Results We generated two dominant negative Dichaete constructs, one lacking a DNA binding domain and the other fused to the Engrailed transcriptional repressor domain. We expressed these tissue-specifically in the midline and in neuroblasts using the UAS/GAL4 system, validating their use at the phenotypic level and with known target genes. Using ChIP and immunohistochemistry, we identified two new likely direct Dichaete target genes, commisureless in the midline and asense in the neuroectoderm. We performed genome-wide expression profiling in stage 8–9 embryos, identifying almost a thousand potential tissue-specific Dichaete targets, with half of these genes showing evidence of Dichaete binding in vivo. These include a number of genes with known roles in CNS development, including several components of the Notch, Wnt and EGFR signalling pathways. Conclusions As well as identifying commisureless as a target, our data indicate that Dichaete helps establish its expression during early midline development but has less effect on its established later expression, highlighting Dichaete action on tissue specific enhancers. An analysis of the broader range of candidate Dichaete targets indicates that Dichaete plays diverse roles in CNS development, with the 500 or so Dichaete-bound putative targets including a number of transcription factors, signalling pathway components and terminal differentiation genes. In the early neurectoderm we implicate Dichaete in the lateral inhibition pathway and show that Dichaete acts to repress the proneural gene asense. Our analysis also reveals that dominant negatives cause off-target effects, highlighting the need to use other experimental data for validating findings from dominant negative studies.