Transcription of ribosomal genes assembled into chromatin requires binding of the transcription termination factor TTF-I to the promoter-proximal terminator T0. To analyze the mechanism of TTF-I-mediated transcriptional activation, we have used mutant templates with altered sequence, polarity and distance of T0 with respect to the transcription start site. Transcription activation by TTF-I is chromatin specific and requires the precise positioning of the terminator relative to the promoter. Whereas termination by TTF-I depends on the correct orientation of a terminator, TTF-I-mediated transcriptional activation is orientation independent. TTF-I can bind to nucleosomal DNA in the absence of enzymatic activities that destabilize nucleosome structure. Chromatin-bound TTF-I synergizes with ATP-dependent cofactors present in extracts of Drosophila embryos and mouse cells to position a nucleosome over the rDNA promoter and the transcription start site. Nucleosome positioning correlates tightly with the activation of rDNA transcription. We suggest that transcriptional activation by TTF-I is a stepwise process involving the creation of a defined promoter architecture and that the positioning of a nucleosome is compatible with, if not a prerequisite for, transcription initiation from rDNA chromatin.