Plant BZR1-BAM transcription factors contain a β-amylase (BAM)–like domain, characteristic of proteins involved in starch breakdown. The enzyme-derived domains appear to be noncatalytic, but they determine the function of the two Arabidopsis thaliana BZR1-BAM isoforms (BAM7 and BAM8) during transcriptional initiation. Removal or swapping of the BAM domains demonstrates that the BAM7 BAM domain restricts DNA binding and transcriptional activation, while the BAM8 BAM domain allows both activities. Furthermore, we demonstrate that BAM7 and BAM8 interact on the protein level and cooperate during transcriptional regulation. Site-directed mutagenesis of residues in the BAM domain of BAM8 shows that its function as a transcriptional activator is independent of catalysis but requires an intact substrate binding site, suggesting it may bind a ligand. Microarray experiments with plants overexpressing truncated versions lacking the BAM domain indicate that the pseudo-enzymatic domain increases selectivity for the preferred cis-regulatory element BBRE (BZR1-BAM Responsive Element). Side specificity toward the G-box may allow crosstalk to other signaling networks. This work highlights the importance of the enzyme-derived domain of BZR1-BAMs, supporting their potential role as metabolic sensors.