Transcriptional regulation of the galactose-metabolizing genes in Saccharomyces cerevisiae depends on three core proteins: Gal4p, the transcriptional activator that binds to upstream activating DNA sequences (UAS(GAL)); Gal80p, a repressor that binds to the carboxyl terminus of Gal4p and inhibits transcription; and Gal3p, a cytoplasmic transducer that, upon binding galactose and adenosine 5'-triphosphate, relieves Gal80p repression. The current model of induction relies on Gal3p sequestering Gal80p in the cytoplasm. However, the rapid induction of this system implies that there is a missing factor. Our structure of Gal80p in complex with a peptide from the carboxyl-terminal activation domain of Gal4p reveals the existence of a dinucleotide that mediates the interaction between the two. Biochemical and in vivo experiments suggests that nicotinamide adenine dinucleotide phosphate (NADP) plays a key role in the initial induction event.