Early developmental patterning of the Drosophila embryo is driven by the activities of a diverse set of maternally and zygotically derived transcription factors, including repressors encoded by gap genes such as Krüppel, knirps, giant and the mesoderm-specific snail. The mechanism of repression by gap transcription factors is not well understood at a molecular level. Initial characterization of these transcription factors suggests that they act as short-range repressors, interfering with the activity of enhancer or promoter elements 50 to 100 bp away. To better understand the molecular mechanism of short-range repression, we have investigated the properties of the Giant gap protein. We tested the ability of endogenous Giant to repress when bound close to the transcriptional initiation site and found that Giant effectively represses a heterologous promoter when binding sites are located at -55 bp with respect to the start of transcription. Consistent with its role as a short-range repressor, as the binding sites are moved to more distal locations, repression is diminished. Rather than exhibiting a sharp 'step-function' drop-off in activity, however, repression is progressively restricted to areas of highest Giant concentration. Less than a two-fold difference in Giant protein concentration is sufficient to determine a change in transcriptional status of a target gene. This effect demonstrates that Giant protein gradients can be differentially interpreted by target promoters, depending on the exact location of the Giant binding sites within the gene. Thus, in addition to binding site affinity and number, cis element positioning within a promoter can affect the response of a gene to a repressor gradient. We also demonstrate that a chimeric Gal4-Giant protein lacking the basic/zipper domain can specifically repress reporter genes, suggesting that the Giant effector domain is an autonomous repression domain.