The cohesin protein complex is a conserved structural component of chromosomes. Cohesin binds numerous sites along interphase chromosomes and is essential for sister chromatid cohesion and DNA repair. Here, we test the idea that cohesin also regulates gene expression. This idea arose from the finding that the Drosophila Nipped-B protein, a functional homolog of the yeast Scc2 factor that loads cohesin onto chromosomes, facilitates the transcriptional activation of certain genes by enhancers located many kilobases away from their promoters. We find that cohesin binds between a remote wing margin enhancer and the promoter at the cut locus in cultured cells, and that reducing the dosage of the Smc1 cohesin subunit increases cut expression in the developing wing margin. We also find that cut expression is increased by a unique pds5 gene mutation that reduces the binding of cohesin to chromosomes. On the basis of these results, we posit that cohesin inhibits long-range activation of the Drosophila cut gene, and that Nipped-B facilitates activation by regulating cohesin-chromosome binding. Such effects of cohesin on gene expression could be responsible for many of the developmental deficits that occur in Cornelia de Lange syndrome, which is caused by mutations in the human homolog of Nipped-B.