Deletion of the bacterial two-component response regulator homologue Skn7 results in sensitivity of yeast to oxidizing agents indicating that Skn7 is involved in the response to this type of stress. Here we demonstrate that following oxidative stress, Skn7 regulates the induction of two genes: TRX2, encoding thioredoxin, and a gene encoding thioredoxin reductase. TRX2 is already known to be induced by oxidative stress dependent on the Yap1 protein, an AP1-like transcription factor responsible for the induction of gene expression in response to various stresses. The thioredoxin reductase gene has not previously been shown to be activated by oxidative stress and, significantly, we find that it too is regulated by Yap1. The control of at least TRX2 by Skn7 is a direct mechanism as Skn7 binds to the TRX2 gene promoter in vitro. This shows Skn7 to be a transcription factor, at present the only such eukaryotic two-component signalling protein. Our data further suggest that Skn7 and Yap1 co-operate on the TRX2 promoter, to induce transcription in response to oxidative stress.