The evolutionarily conserved C-terminal binding protein (CtBP) has been well characterized as a transcriptional co-repressor. Herein, we report a previously unreported function for CtBP, showing that lowering CtBP dosage genetically suppresses Polycomb group (PcG) loss-of-function phenotypes while enhancing that of trithorax group (trxG) in Drosophila, suggesting that the role of CtBP in gene activation is more pronounced in fly development than previously thought. In fly cells, we show that CtBP is required for the derepression of the most direct PcG target genes, which are highly enriched by homeobox transcription factors, including Hox genes. Using ChIP and co-IP assays, we demonstrate that CtBP is directly required for the molecular switch between H3K27me3 and H3K27ac in the derepressed Hox loci. In addition, CtBP physically interacts with many proteins, such as UTX, CBP, Fs(1)h and RNA Pol II, that have activation roles, potentially assisting in their recruitment to promoters and Polycomb response elements that control Hox gene expression. Therefore, we reveal a prominent activation function for CtBP that confers a major role for the epigenetic program of fly segmentation and development.