GAGA is a Drosophila transcription factor that shows a high degree of post-translational modification. Here, we show that GAGA factor is acetylated in vivo. Lysine residues K325 and K373 on basic regions BR1 and BR3 of the DNA binding domain, respectively, are shown to be acetylated by PCAF. While BR1 is strictly required to stabilize DNA binding, BR3 is dispensable. However, acetylation of both lysine residues, either alone or in combination, weakens the binding to DNA. Despite the high degree of conservation of K325 and K373 in flies, their mutation to glutamine does not affect DNA binding. Molecular dynamics simulations, using acetylated K325 and a K325Q mutant of GAGA DNA binding domain in complex with DNA, are fully consistent with these results and provide a thermodynamic explanation for this observation. We propose that while K325 and K373 are not essential for DNA binding they have been largely conserved for regulatory purposes, thus highlighting a key regulatory system for GAGA factor in flies.