Abstract Background The study of the network between transcription factors and their targets is important for understanding the complex regulatory mechanisms in a cell. Unfortunately, with standard microarray experiments it is not possible to measure the transcription factor activities (TFAs) directly, as their own transcription levels are subject to post-translational modifications. Results Here we propose a statistical approach based on partial least squares (PLS) regression to infer the true TFAs from a combination of mRNA expression and DNA-protein binding measurements. This method is also statistically sound for small samples and allows the detection of functional interactions among the transcription factors via the notion of "meta"-transcription factors. In addition, it enables false positives to be identified in ChIP data and activation and suppression activities to be distinguished. Conclusion The proposed method performs very well both for simulated data and for real expression and ChIP data from yeast and E. Coli experiments. It overcomes the limitations of previously used approaches to estimating TFAs. The estimated profiles may also serve as input for further studies, such as tests of periodicity or differential regulation. An R package "plsgenomics" implementing the proposed methods is available for download from the CRAN archive.