A long-standing question in gene regulation is how remote enhancers communicate with their target promoters, and in particular how chromatin topology dynamically relates to gene activation. Here, we combine genome editing and multi-color live imaging to simultaneously visualize physical enhancer–promoter interaction and transcription at the single cell level in Drosophila embryos. Examining transcriptional activation of a reporter by the endogenous even-skipped enhancers 150 kb away, we identify three distinct topological conformation states and measure their transition kinetics. We find that sustained proximity of the enhancer to its target is required for activation, yet is not sufficient. We show that transcription affects the 3D topology, as it is associated with a temporal stabilization of the proximal conformation and a further spatial compaction of the locus. Moreover, the facilitated long-range activation results in transcriptional competition at the locus, causing corresponding developmental defects. Our approach thus offers means to quantitatively study the spatial and temporal determinants of long-range gene regulation and their implications on cellular fates.