DREAM (calsenilin/KChIP3) is an EF-hand calcium-binding protein that represses transcription of prodynorphin and c-fos genes. Here we present structural and binding studies on single-site mutants of DREAM designed to disable Ca(2+) binding to each of the functional EF-hands (EF-2: D150N; EF-3: E186Q; and EF-4: E234Q). Isothermal titration calorimetry (ITC) analysis of Ca(2+) binding to the various mutants revealed that, in the absence of Mg(2+), Ca(2+) binds independently and sequentially to EF-3 (DeltaH = -2.4 kcal/mol), EF-4 (DeltaH = +5.2 kcal/mol), and EF-2 (DeltaH = +1 kcal/mol). By contrast, only two Ca(2+) bind to DREAM in the presence of physiological levels of Mg(2+) for both wild-type and D150N, suggesting that EF-2 binds constitutively to Mg(2+). ITC measurements demonstrate that one Mg(2+) binds enthalpically with high affinity (K(d) = 13 mum and DeltaH = -0.79 kcal/mol) and two or more Mg(2+) bind entropically in the millimolar range. Size-exclusion chromatography studies revealed that Mg(2+) stabilizes DREAM as a monomer, whereas Ca(2+) induces protein dimerization. Electrophoretic mobility shift assays indicated that Mg(2+) is essential for sequence-specific binding of DREAM to DNA response elements (DREs) in prodynorphin and c-fos genes. The EF-hand mutants bind specifically to DRE, suggesting they are functionally intact. None of the EF-hand mutants bind DRE at saturating Ca(2+) levels, suggesting that binding of a single Ca(2+) at either EF-3 or EF-4 is sufficient to drive conformational changes that abolish DNA binding. NMR structural analysis indicates that metal-free DREAM adopts a folded yet flexible molten globule-like structure. Both Ca(2+) and Mg(2+) induce distinct conformational changes, which stabilize tertiary structure of DREAM. We propose that Mg(2+) binding at EF-2 may structurally bridge DREAM to DNA targets and that Ca(2+)-induced protein dimerization disrupts DNA binding.