The yeast three-hybrid (Y3H) assay expands the fields of drug discovery and protein engineering by enabling the search of large variant libraries for targets that do not inherently produce a distinct, measurable phenotype. The Y3H assay links the DNA-binding and activation domains of a transcription factor via a chemically synthesized heterodimeric small molecule, thereby activating a downstream reporter gene. Although the Y3H assay has been successfully applied as a positive selection to discover novel drug targets and to evolve proteins with improved functions, its expansion into applications requiring a high-throughput, versatile selection against transcriptional activation has been hindered by its limited dynamic range as a counter selection. Here, we describe the development of a second-generation Y3H counter selection that uses the dual tetracycline (Tet) system to tighten transcriptional regulation of the reporter gene. The Tet Y3H counter selection has an improved dynamic range and provides enrichment from mock libraries of up to 10⁶, a 10⁴-fold improvement over our original Y3H counter selection. This enhanced dynamic range brings the Y3H counter selection to a standard that is suitable for real-world protein engineering applications.