The glucocorticoid (GR) and androgen (AR) receptors execute unique functions in vivo, yet have nearly identical DNA binding specificities. To identify mechanisms that facilitate functional diversification among these transcription factor paralogs, we studied them in an equivalent cellular context. Analysis of chromatin and sequence suggest that divergent binding, and corresponding gene regulation, are driven by different abilities of AR and GR to interact with relatively inaccessible chromatin. Divergent genomic binding patterns can also be the result of subtle differences in DNA binding preference between AR and GR. Furthermore, the sequence composition of large regions (>10 kb) surrounding selectively occupied binding sites differs significantly, indicating a role for the sequence environment in guiding AR and GR to distinct binding sites. The comparison of binding sites that are shared shows that the specificity paradox can also be resolved by differences in the events that occur downstream of receptor binding. Specifically, shared binding sites display receptor-specific enhancer activity, cofactor recruitment and changes in histone modifications. Genomic deletion of shared binding sites demonstrates their contribution to directing receptor-specific gene regulation. Together, these data suggest that differences in genomic occupancy as well as divergence in the events that occur downstream of receptor binding direct functional diversification among transcription factor paralogs.