It has been proposed that retinoic acid receptors (RARs) and thyroid hormone receptors (TRs) both bind to AGGTCA “half-site” sequences, but distinguish their different target genes by recognizing different half-site spacings. We report here that artificial DNA binding sites based on these AGGTCA half-sites confer high affinity, but poor specificity, and that spacing alone does not account for the divergent DNA recognition properties of TRs and RARs. Instead, we have determined that the non-consensus half-sites that are present in naturally occurring RAR and TR target genes play a crucial role in defining receptor DNA recognition specificity, and work together with flanking sequences and half-site spacing to produce receptor-specific DNA binding in vitro. We also provide evidence that auxiliary proteins in cells generate an additional layer of receptor-specific target gene recognition, in part by destabilizing the binding of nuclear receptors to the “wrong” response elements.