Facioscapulohumeral muscular dystrophy (FSHD) is caused by inappropriate expression of the double homeodomain protein DUX4. DUX4 has bimodal effects, inhibiting myogenic differentiation and blocking MyoD at low levels of expression, and killing myoblasts at high levels. Pax3 and Pax7, which contain related homeodomains, antagonize the cell death phenotype of DUX4 in C2C12 cells, suggesting some type of competitive interaction. Here, we show that the effects of DUX4 on differentiation and MyoD expression require the homeodomains but do not require the C-terminal activation domain of DUX4. We tested the set of equally related homeodomain proteins (Pax6, Pitx2c, OTX1, Rax, Hesx1, MIXL1 and Tbx1) and found that only Pax3 and Pax7 display phenotypic competition. Domain analysis on Pax3 revealed that the Pax3 homeodomain is necessary for phenotypic competition, but is not sufficient, as competition also requires the paired and transcriptional activation domains of Pax3. Remarkably, substitution mutants in which DUX4 homeodomains are replaced by Pax7 homeodomains retain the ability to inhibit differentiation and to induce cytotoxicity.