Identifying transcription factors (TF) involved in producing a genome-wide transcriptional profile is an essential step in building mechanistic model that can explain observed gene expression data. We developed a statistical framework for constructing genome-wide signatures of TF activity, and for using such signatures in the analysis of gene expression data produced by complex transcriptional regulatory programs. Our framework integrates ChIP-seq data and appropriately matched gene expression profiles to identify True REGulatory (TREG) TF-gene interactions. It provides genome-wide quantification of the likelihood of regulatory TF-gene interaction that can be used to either identify regulated genes, or as genome-wide signature of TF activity. To effectively use ChIP-seq data, we introduce a novel statistical model that integrates information from all binding peaks within 2 Mb window around a genes transcription start site (TSS), and provides gene-level binding scores and probabilities of regulatory interaction. In the second step we integrate these binding scores and regulatory probabilities with gene expression data to assess the likelihood of True REGulatory (TREG) TF-gene interactions. We demonstrate the advantages of TREG framework in identifying genes regulated by two TFs with widely different distribution of functional binding events (ERxcexb1 and E2f1). We also show that TREG signatures of TF activity vastly improve our ability to detect involvement of ERxcexb1 in producing complex diseases-related transcriptional profiles. Through a large study of disease-related transcriptional signatures and transcriptional signatures of drug activity, we demonstrate that increase in statistical power associated with the use of TREG signatures makes the crucial difference in identifying key targets for treatment, and drugs to use for treatment. All methods are implemented in an open-source R package treg. The package also contains all data used in the analysis including 494 TREG binding profiles based on ENCODE ChIP-seq data. The treg package can be downloaded at http://GenomicsPortals.org. 