The liver-enriched transcription factor CCAAT/enhancer binding protein (C/EBP) binds to numerous liver-specific promoters, yet the mechanism by which the protein stimulates transcription has not been described. The serum albumin promoter, which is liver specific, contains a strong C/EBP-binding site tightly juxtaposed to a binding site for the ubiquitous factor nuclear factor-Y (NF-Y). The binding of C/EBP impairs the binding of NF-Y; yet surprisingly, this arrangement leads to strong synergistic activation of a minimal promoter in liver nuclear extracts. Transcriptional synergism is manifested by NF-Y facilitating the ability of C/EBP to form preinitiation complexes that are stable through multiple rounds of transcription. Binding by itself, C/EBP stimulates transcription weakly without forming stable complexes, and moving the NF-Y binding site 10 bp away from the C/EBP site increases NF-Y binding in the presence of C/EBP but reduces the efficiency of stable complex formation and transcriptional synergism. These findings show that C/EBP requires precise positioning next to a ubiquitous factor for optimal formation of stable complexes and provides a model to understand the dramatic activation of the albumin gene in hepatic development.