Runx proteins have been implicated in acute myeloid leukemia, cleidocranial dysplasia, and stomach cancer. These proteins control key developmental processes in which they function as both transcriptional activators and repressors. How these opposing regulatory modes can be accomplished in the in vivo context of a cell has not been clear. In this study we use the developing cone cell in the Drosophila visual system to elucidate the mechanism of positive and negative regulation by the Runx protein Lozenge (Lz). We describe a regulatory circuit in which Lz causes transcriptional activation of the homeodomain protein Cut, which can then stabilize a Lz repressor complex in the same cell. Whether a gene is activated or repressed is determined by whether the Lz activator or the repressor complex binds to its upstream sequence. This study provides a mechanistic basis for the dual function of Runx proteins that is likely to be conserved in mammalian systems.