Glucocorticoid receptor (GR) and octamer transcription factors 1 and 2 (Oct-1/2) interact synergistically to activate the transcription of mouse mammary tumor virus and many cellular genes. Synergism correlates with cooperative DNA binding of the two factors in vitro. To examine the molecular basis for these cooperative interactions, we have studied the consequences of protein-protein binding between GR and Oct-1/2. We have determined that GR binds in solution to the octamer factor POU domain. Binding is mediated through an interface in the GR DNA binding domain that includes amino acids C500 and L501. In transfected mammalian cells, a transcriptionally inert wild-type but not an L501P GR peptide potentiated transcriptional activation by Oct-2 100-fold above the level that could be attained in the cell by expressing Oct-2 alone. Transcriptional activation correlated closely with a striking increase in the occupancy of octamer motifs adjacent to glucocorticoid response elements (GREs) on transiently transfected DNAs. Intriguingly, GR–Oct-1/2 binding was interrupted by the binding of GR to a GRE. We propose a model for transcriptional cooperativity in which GR–Oct-1/2 binding promotes an increase in the local concentration of octamer factors over glucocorticoid-responsive regulatory regions. These results reveal transcriptional cooperativity through a direct protein interaction between two sequence-specific transcription factors that is mediated in a way that is expected to restrict transcriptional effects to regulatory regions with DNA binding sites for both factors.