An in vivo transcriptional activator, the immediate early protein (IE) of pseudorabies virus, potentiates the activity of the major late promoter in a reconstituted chromatin assembly system where the assembly of preinitiation complexes is in competition with the assembly of promoter sequences within nucleosomes. IE function requires the simultaneous action of TFIID and results in the formation of stable preinitiation complexes within nucleosome-assembled templates. IE is unable to reverse nucleosome-mediated repression, once established, or to further increase the activity of previously activated templates. These results indicate that IE stimulates TFIID binding to promoter sequences, effectively competing with nucleosomes, during chromatin reconstitution. The specific implications for IE function in vivo and the general implications for cellular gene regulation are discussed.