Hox genes pattern the fates of the ventral ectodermal Pn.p cells that lie along the anteroposterior (A/P) body axis of C. elegans. In these cells, the Hox genes are expressed in sequential overlapping domains where they control the ability of each Pn.p cell to fuse with the surrounding syncytial epidermis. The activities of Hox proteins are sex-specific in this tissue, resulting in sex-specific patterns of cell fusion: in hermaphrodites, the mid-body cells remain unfused, whereas in males, alternating domains of syncytial and unfused cells develop. We have found that the gene egl-27, which encodes a C. elegans homologue of a chromatin regulatory factor, specifies these patterns by regulating both Hox gene expression and Hox protein function. In egl-27 mutants, the expression domains of Hox genes in these cells are shifted posteriorly, suggesting that egl-27 influences A/P positional information. In addition, egl-27 controls Hox protein function in the Pn.p cells in two ways: in hermaphrodites it inhibits MAB-5 activity, whereas in males it permits a combinatorial interaction between LIN-39 and MAB-5. Thus, by selectively modifying the activities of Hox proteins, egl-27 elaborates a simple Hox expression pattern into complex patterns of cell fates. Taken together, these results implicate egl-27 in the diversification of cell fates along the A/P axis and suggest that chromatin reorganization is necessary for controlling Hox gene expression and Hox protein function.