The precise mechanistic relationship between gene activation and repression events is a central question in mammalian organogenesis, as exemplified by the evolutionarily conserved sine oculis (Six), eyes absent (Eya) and dachshund (Dach) network of genetically interacting proteins. Here, we report that Six1 is required for the development of murine kidney, muscle and inner ear, and that it exhibits synergistic genetic interactions with Eya factors. We demonstrate that the Eya family has a protein phosphatase function, and that its enzymatic activity is required for regulating genes encoding growth control and signalling molecules, modulating precursor cell proliferation. The phosphatase function of Eya switches the function of Six1-Dach from repression to activation, causing transcriptional activation through recruitment of co-activators. The gene-specific recruitment of a co-activator with intrinsic phosphatase activity provides a molecular mechanism for activation of specific gene targets, including those regulating precursor cell proliferation and survival in mammalian organogenesis.