Transcriptional control of the Drosophila terminal gap gene huckebein (hkb) depends on Torso (Tor) receptor tyrosine kinase (RTK) signaling and the Rel/NFκB homolog Dorsal (Dl) [1, 2, 3, 4]. Dl acts as an intrinsic transcriptional activator in the ventral region of the embryo, but under certain conditions, such as when it is associated with the non-DNA-binding co-repressor Groucho (Gro), it is converted into a repressor . Gro is recruited to the enhancer element in the vicinity of Dl by sequence-specific transcription factors such as Dead Ringer (Dri) [6, 7]. We examined the interplay between Dl, Gro and Dri on the hkb enhancer and show that when acting over a distance, Gro abolishes rather than converts Dl activator function. Reducing the distance between Dl- and Dri-binding sites, however, switches Dl into a Gro-dependent repressor that overrides activation of transcription. Both of the distance-dependent regulatory options of Gro — quenching and silencing of transcription– are inhibited by RTK signaling. These data describe a newly identified mode of function for Gro when acting in concert with Dl. RTK signaling provides a way of modulating Dl function by interfering either with Gro activity or with Dri-dependent recruitment of Gro to the enhancer.