Ikaros is essential for the normal development and regulated proliferation of lymphoid cells. In lymphocytes, Ikaros exists as an integral component of chromatin-remodeling complexes, including the Mi-2beta/nucleosome remodeling and deacetylation complex (NuRD) complex. It is expected that Ikaros, together with these associated activities effects repression, but here we show that they may also potentiate gene expression in cycling cells. Ikaros cannot activate transcription by itself; instead, it enhances the activity of both weak and strong activators. For this role in potentiation, Ikaros requires its DNA binding and dimerization domains. The DNA binding and dimerization properties of Ikaros are also responsible for its targeting to pericentromeric heterochromatin (PC-HC). Significantly, Ikaros mutants with altered specificity for DNA binding that are unable to localize to PC-HC are incapable of stimulating transcription from reporters bearing their cognate sites. Thus, potentiation of gene expression by Ikaros correlates strongly with its ability to localize to PC-HC in combination with the chromatin remodeler Mi-2beta.