Most genes are regulated by multiple transcription factors, often assembling into multi-protein complexes in the gene regulatory region. Understanding of the molecular origin of specificity of gene regulatory complex formation in the context of the whole genome is currently inadequate. A phage transcription factor λ-CI forms repressive multi-protein complexes by binding to multiple binding sites in the genome to regulate the lifecycle of the phage. The protein-protein interaction between two DNA-bound λ-CI molecules is stronger when they are bound to the correct pair of binding sites, suggesting allosteric transmission of recognition of correct DNA sequences to the protein-protein interaction interface. Exploration of conformation and dynamics by time-resolved fluorescence anisotropy decay and molecular dynamics suggests a change in protein dynamics to be a crucial factor in mediating allostery. A lattice-based model suggests that DNA-sequence induced allosteric effects could be crucial underlying factors in differentially stabilizing the correct site-specific gene regulatory complexes. We conclude that transcription factors have evolved multiple mechanisms to augment the specificity of DNA-protein interactions in order to achieve an extraordinarily high degree of spatial and temporal specificities of gene regulatory complexes, and DNA-sequence induced allostery plays an important role in the formation of sequence-specific gene regulatory complexes.