A 120 bp homeotic response element that is regulated specifically by Deformed in Drosophila embryos contains a single binding site for Deformed protein. However, a 24 bp sub-element containing this site does not constitute a Deformed response element. Specific activation requires a second region in the 120 bp element, which presumably contains one or more binding sites for Deformed cofactors. We have isolated a novel protein from Drosophila nuclear extracts which binds specifically to a site in this second region. This protein, which we call DEAF-1 (Deformed epidermal autoregulatory factor-1), contains three conserved domains. One of these includes a cysteine repeat motif that is similar to a motif found in Drosophila Nervy and the human MTG8 proto-oncoprotein, and another matches a region of Drosophila Trithorax. Mutations in the response element designed to improve binding to DEAF-1 in vitro resulted in increased embryonic expression. Conversely, small mutations designed to diminish binding to DEAF-1 resulted in reduced expression of the element. Thus, DEAF-1 is likely to contribute to the functional activity, and perhaps to the homeotic specificity, of this response element. Consistent with this hypothesis, we have discovered DEAF-1 binding sites in other Deformed response elements.