Transcriptional corepressors play complex roles in developmental gene regulation. These proteins control transcription by recruiting diverse chromatin-modifying enzymes, but it is not known whether corepressor activities are finely regulated in different developmental settings or whether their basic activities are identical in most contexts. The evolutionarily conserved C-terminal binding protein (CtBP) is recruited by a variety of transcription factors that play crucial roles in development and disease. CtBP contains a central NAD(H) binding core domain that is homologous to D2 hydroxy acid dehydrogenase enzymes, as well as an unstructured C-terminal domain. NAD(H) binding is important for CtBP function, but the significance of its intrinsic dehydrogenase activity, as well as that of the unstructured C terminus, is poorly understood. To clarify the biological relevance of these features, we established genetic rescue assays to determine how different forms of CtBP function in the context of Drosophila melanogaster development. The mutant phenotypes and specific gene regulatory effects indicate that both the catalytic site of CtBP and the C-terminal extension play important, if nonessential roles in development. Our results indicate that the structural and enzymatic features of CtBP, previously thought to be dispensable for overall transcriptional control, are critical for modulating this protein's activity in diverse developmental settings.