Bicoid directs anterior development in Drosophila embryos by activating different genes along the anterior-posterior axis. However, its activity is down-regulated at the anterior tip of the embryo, in a process known as retraction. Retraction is under the control of the terminal polarity system, and results in localized repression of Bicoid target genes. Here, we describe a Drosophila homolog of human SAP18, a member of the Sin3A/Rpd3 histone deacetylase complex. dSAP18 interacts with Bicoid in yeast and in vitro, and is expressed early in development coincident with Bicoid. In tissue culture cells, dSAP18 inhibits the ability of Bicoid to activate reporter genes. These results suggest a model in which dSAP18 interacts with Bicoid to silence expression of Bicoid target genes in the anterior tip of the embryo.