In recent years, the meso-diencephalic dopaminergic (mdDA) neurons have been extensively studied for their association with Parkinson's disease. Thus far, specification of the dopaminergic phenotype of mdDA neurons is largely attributed to the orphan nuclear receptor Nurr1. In this study, we provide evidence for extensive interplay between Nurr1 and the homeobox transcription factor Pitx3 in vivo. Both Nurr1 and Pitx3 interact with the co-repressor PSF and occupy the promoters of Nurr1 target genes in concert. Moreover, in vivo expression analysis reveals that Nurr1 alone is not sufficient to drive the dopaminergic phenotype in mdDA neurons but requires Pitx3 for full activation of target gene expression. In the absence of Pitx3, Nurr1 is kept in a repressed state through interaction with the co-repressor SMRT. Highly resembling the effect of ligand activation of nuclear receptors, recruitment of Pitx3 modulates the Nurr1 transcriptional complex by decreasing the interaction with SMRT, which acts through HDACs to keep promoters in a repressed deacetylated state. Indeed, interference with HDAC-mediated repression in Pitx3^-/- embryos efficiently reactivates the expression of Nurr1 target genes, bypassing the necessity for Pitx3. These data position Pitx3 as an essential potentiator of Nurr1 in specifying the dopaminergic phenotype, providing novel insights into mechanisms underlying development of mdDA neurons in vivo, and the programming of stem cells as a future cell replacement therapy for Parkinson's disease.