PU.1 is an essential transcription factor in normal hematopoietic lineage development. It recognizes a large number of promoter sites differing only in bases flanking a core consensus of 5'-GGAA-3'. DNA binding is mediated by its ETS domain, whose sequence selectivity directly corresponds to the transactivational activity and frequency of binding sites for full-length PU.1 in vivo. To better understand the basis of sequence discrimination, we characterized its binding properties to a high affinity and low affinity site. Despite sharing a homologous structural framework as confirmed by DNase I and hydroxyl radical footprinting, the two complexes exhibit striking heterogeneity in terms of hydration properties. High affinity binding is destabilized by osmotic stress, whereas low affinity binding is insensitive. Dimethyl sulfate footprinting showed that the major groove at the core consensus is protected in the high affinity complex but accessible in the low affinity one. Finally, destabilization of low affinity binding by salt is in quantitative agreement with the number of phosphate contacts but is substantially attenuated in high affinity binding. These observations support a mechanism of sequence discrimination wherein specifically bound water molecules couple flanking backbone contacts with base-specific interactions in a sequestered cavity at the core consensus. The implications of this model with respect to other ETS paralogs are discussed.