Yeast galactokinase (Gal1p) is an enzyme and a regulator of transcription. In addition to phosphorylating galactose, Gal1p activates Gal4p, the activator of GAL genes, but the mechanism of this regulation has been unclear. Here, biochemical and genetic evidence is presented to show that Gal1p activates Gal4p by direct interaction with the Gal4p inhibitor Gal80p. interaction requires galactose, adenosine triphosphate, and the regulatory function of Gal1p. These data indicate that Gal1p-Gal80p complex formation results in the inactivation of Gal80p, thereby transmitting the galactose signal to Gal4p.