Membraneless organelles or condensates form through liquid-liquid phase separation1-4, which is thought to underlie gene transcription through condensation of the large-scale nucleolus5-7 or in smaller assemblies known as transcriptional condensates8-11. Transcriptional condensates have been hypothesized to phase separate at particular genomic loci and locally promote the biomolecular interactions underlying gene expression. However, there have been few quantitative biophysical tests of this model in living cells, and phase separation has not yet been directly linked with dynamic transcriptional outputs12,13. Here, we apply an optogenetic approach to show that FET-family transcriptional regulators exhibit a strong tendency to phase separate within living cells, a process that can drive localized RNA transcription. We find that TAF15 has a unique charge distribution among the FET family members that enhances its interactions with the C-terminal domain of RNA polymerase II. Nascent C-terminal domain clusters at primed genomic loci lower the energetic barrier for nucleation of TAF15 condensates, which in turn further recruit RNA polymerase II to drive transcriptional output. These results suggest that positive feedback between interacting transcriptional components drives localized phase separation to amplify gene expression.