Transcription factors regulate gene expression and are among the most complex and powerful proteins in nature. They have been studied extensively as model systems for a variety of biochemical phenomena and are valuable tools for regulating synthetic gene networks and metabolic pathways. Despite recent interest, the rational design of novel transcription factors for use in biotechnology has remained elusive due to the challenges of computational protein design. The study of molecular evolution can provide insight on the emergence of complex biophysical properties and aid in guiding protein engineering efforts. Here, we have investigated the evolution of the LacI/GalR Family of sugar-binding transcription factors by characterising the in vitro and in vivo functional properties of the Family’s putative last common ancestor (Anc3), which was revived using ancestral sequence reconstruction. In vitro binding assays demonstrated that Anc3 was selective for disaccharides cellobiose, a-melibiose and sucrose, emphasizing the importance of promiscuity and selectivity in the evolution of novel protein function. We developed a reporter and selection system to assay in vivo properties and guide future directed evolution experiments. Control experiments on the contemporary Escherichia coli LacI protein demonstrated that the two systems could effectively report the in vivo function of LacI/GalR Family transcription factors and enrich the intended phenotype during rounds of negative selection, respectively. Finally, we assayed the in vivo function of Anc3 to reveal that it is functionally co-repressible with cellobiose and a-melibiose, a result concordant with in vitro assays and the constructed phylogeny. Of equal importance to the evolutionary insights gained on the LacI/GalR Family, the development of an accurate phylogenetic tree, robust biophysical assays and novel reporter/selection methods as part of this work will form the platform for a range of future experiments to investigate the evolution of allostery and potentially produce novel bio-orthogonal transcription factors.