The Drosophila mophogenetic protein Bicoid (Bcd) can activate transcription in a concentration-dependent manner in embryos. It contains a self-inhibitory domain that can interact with the co-repressor Sin3A. In this report, we study a Bcd mutant, Bcd(A57-61), which has a strengthened self-inhibitory function and is unable to activate the hb-CAT reporter in Drosophila cells, to analyze the role of co-factors in regulating Bcd function. We show that increased concentrations of the co-activator dCBP in cells can switch this protein from its inactive state to an active state on the hb-CAT reporter. The C-terminal portion of Bcd(A57-61) is required to mediate such activity-rescuing function of dCBP. Although capable of binding to DNA in vitro, Bcd(A57-61) is unable to access the hb enhancer element in cells, suggesting that its DNA binding defect is only manifested in a cellular context. Increased concentrations of dCBP restore not only the ability of Bcd(A57-61) to access the hb enhancer element in cells but also the occupancy of the general transcription factors TBP and TFIIB at the reporter promoter. These and other results suggest that an activator can undergo switches between its active and inactive states through sensing the opposing actions of positive and negative co-factors.