Gene activation by mammalian transcription factors (TFs) requires multivalent interactions of their low-complexity domains (LCDs), but how such interactions regulate transcription remains unclear. It has been proposed that extensive LCD-LCD interactions culminating in liquid-liquid phase separation (LLPS) of TFs is the dominant mechanism underlying transactivation. Here, we investigated how tuning the amount and localization of LCD-LCD interactions in vivo affects transcription of endogenous human genes. Quantitative single-cell and single-molecule imaging reveals that the oncogenic TF EWS::FLI1 requires a narrow optimum of LCD-LCD interactions to activate its target genes associated with GGAA microsatellites. Increasing LCD-LCD interactions toward putative LLPS represses transcription of these genes in patient-derived cells. Likewise, ectopically creating LCD-LCD interactions to sequester EWS::FLI1 into a well-documented LLPS compartment, the nucleolus, inhibits EWS::FLI1-driven transcription and oncogenic transformation. Our findings show how altering the balance of LCD-LCD interactions can influence transcriptional regulation and suggest a potential therapeutic strategy for targeting disease-causing TFs.