Previous studies have shown that GAGA Factor (GAF) is enriched on promoters with paused RNA Polymerase II (Pol II), but its genome-wide function and mechanism of action remain largely uncharacterized. We assayed the levels of transcriptionally-engaged polymerase using global run-on sequencing (GRO-seq) in control and GAF-RNAi Drosophila S2 cells and found promoter-proximal polymerase was significantly reduced on a large subset of paused promoters where GAF occupancy was reduced by knock down. These promoters show a dramatic increase in nucleosome occupancy upon GAF depletion. These results, in conjunction with previous studies showing that GAF directly interacts with nucleosome remodelers, strongly support a model where GAF directs nucleosome displacement at the promoter and thereby allows the entry Pol II to the promoter and pause sites. This action of GAF on nucleosomes is at least partially independent of paused Pol II because intergenic GAF binding sites with little or no Pol II also show GAF-dependent nucleosome displacement. In addition, the insulator factor BEAF, the BEAF-interacting protein Chriz, and the transcription factor M1BP are strikingly enriched on those GAF-associated genes where pausing is unaffected by knock down, suggesting insulators or the alternative promoter-associated factor M1BP protect a subset of GAF-bound paused genes from GAF knock-down effects. Thus, GAF binding at promoters can lead to the local displacement of nucleosomes, but this activity can be restricted or compensated for when insulator protein or M1BP complexes also reside at GAF bound promoters.