Dihydroxyacetone (Dha) kinases are a novel family of kinases with signaling and metabolic functions. Here we report the x-ray structures of the transcriptional activator DhaS and the coactivator DhaQ and characterize their function. DhaQ is a paralog of the Dha binding Dha kinase subunit; DhaS belongs to the family of TetR repressors although, unlike all known members of this family, it is a transcriptional activator. DhaQ and DhaS form a stable complex that in the presence of Dha activates transcription of the Lactococcus lactis dha operon. Dha covalently binds to DhaQ through a hemiaminal bond with a histidine and thereby induces a conformational change, which is propagated to the surface via a cantilever-like structure. DhaS binding protects an inverted repeat whose sequence is GGACACATN6ATTTGTCC and renders two GC base pairs of the operator DNA hypersensitive to DNase I cleavage. The proximal half-site of the inverted repeat partially overlaps with the predicted -35 consensus sequence of the dha promoter.