The amplitude of thermodynamic fluctuations in biological macromolecules determines their conformational behavior, dimensions, nature of phase transitions and effectively their specificity and affinity, thus contributing to fine-tuned molecular recognition. Unique among large-scale conformational changes in proteins are temperature-induced collapse transitions in intrinsically disordered proteins (IDPs). Here, we show that CytR DNA-binding domain, an IDP that folds on binding DNA, undergoes a coil-to-globule transition with temperature in the absence of DNA while exhibiting energetically decoupled local and global structural rearrangements, and maximal thermodynamic fluctuations at the optimal bacterial growth temperature. The collapse is shown to be a continuous transition through a combination of statistical-mechanical modeling and all-atom implicit solvent simulations. Surprisingly, CytR binds single-site cognate DNA with negative cooperativity, described by Hill coefficients less than one, resulting in a graded binding response. We show that heterogeneity arising from varying binding-competent CytR conformations or orientations at the single-molecular level contributes to negative binding cooperativity at the level of bulk measurements due to the conflicting requirements of collapse transition, large fluctuations and folding-upon-binding. Our work reports strong evidence for functionally driven thermodynamic fluctuations in determining the extent of collapse and disorder with implications in protein search efficiency of target DNA sites and regulation. © The Author(s) 2018.