Hox proteins are transcription factors that assign positional identities along the body axis of animal embryos. Different Hox proteins have similar DNA-binding functions in vitro and require cofactors to achieve their biological functions. Cofactors can function by enhancement of the DNA-binding specificity of Hox proteins, as has been shown for Extradenticle (Exd). We present results supporting a novel mechanism for Hox cofactor function: regulation of transcriptional activation function. First, we provide evidence that the Hox protein Deformed (Dfd) can interact with simple DNA-binding sites in Drosophila embryos in the absence of Exd, but this binding is not sufficient for transcriptional activation of reporter genes. Secondly, either Dfd or a Dfd-VP16 hybrid mediate much stronger activation in embryos on a Dfd-Exd composite site than on a simple Dfd-binding site, even though the two sites possess similar Dfd-binding affinities. This suggests that Exd is required to release the transcriptional activation function of Dfd independently of Exd enhancement of Dfd-binding affinity on the composite site. Thirdly, transfection assays confirmed that Dfd possesses an activation domain, which is suppressed in a manner dependent on the presence of the homeodomain. The regulation of Hox transcriptional activation functions may underlie the different functional specificities of proteins belonging to this developmental patterning family.