The fushi tarazu pair-rule gene is required for the formation of alternating parasegmental boundaries in the Drosophila embryo. fushi tarazu encodes a homeodomain protein necessary for transcription of the engrailed gene in even-numbered parasegments. Here we report that, within an engrailed enhancer, adjacent and conserved binding sites for the Fushi tarazu protein and a cofactor are each necessary, and together sufficient, for transcriptional activation. Footprinting shows that the cofactor site can be bound specifically by Ftz-F1, a member of the nuclear receptor superfamily. Ftz-F1 and the Fushi tarazu homeodomain bind the sites with 4- to 8-fold cooperativity, suggesting that direct contact between the two proteins may contribute to target recognition. Even parasegmental reporter expression is dependent on Fushi tarazu and maternal Ftz-F1, suggesting that these two proteins are indeed the factors that act upon the two sites in embryos. The two adjacent binding sites are also required for continued activity of the engrailed enhancer after Fushi tarazu protein is no longer detectable, including the period when engrailed, and the enhancer, become dependent upon wingless. We also report the existence of a separate negative regulatory element that apparently responds to odd-skipped.