We develop a theory of blockholder activism, in which a blockholder can expend costly effort to improve firm productivity, contract with management to limit agency costs, and influence investment and financing decisions. Starting with an initial toehold, the blockholder may also adjust its stake over time, shaping engagement and firm policies and potentially leading to a takeover bid or an exit. We obtain the equilibrium in closed-form, i.e. the blockholder's dynamic trading strategy, its entry/exit decisions, and the firm’s compensation, financing, and investment policies. A key feature of the model is the endogenous and dynamic nature of the blockholder’s stake, which implies that the allocation of control rights over policies has contrasting implications in static versus dynamic contexts.