The nematode Caenorhabditis elegans has been a choice organism for the study of developmental regulation using classical and molecular genetic approaches. Consequently, many genetically defined pathways have been described and numerous regulatory genes have been identified. However, the biochemical and functional properties of these putative transcription factors have remained uncharacterized, partly because C.elegans cell-free transcription reactions have not been developed. Here we describe the in vitro transcriptional activation properties of two C.elegans homeodomain proteins, UNC-86 and MEC-3, in nuclear extracts derived from C.elegans embryos. Whereas the POU homeodomain protein, UNC-86, alone was able to activate transcription of the mec-3 promoter in vitro, the LIM homeodomain protein, MEC-3, failed to bind DNA or activate transcription on its own. However, in the presence of both UNC-86 and MEC-3, we observed cooperative binding to the mec-3 promoter and synergistic activation of transcription in vitro. Protein-protein interaction assays revealed that UNC-86 can bind directly to MEC-3, and in vitro transcription studies indicate that both proteins contain a functional activation domain. Thus, formation of a heteromeric complex containing two activation domains results in a highly potent activator. These studies provide direct functional evidence for coordinated transcriptional activation by two C.elegans DNA binding proteins that have been defined genetically as regulators of gene expression during embryogenesis.