Teacher education increasingly requires educators to engage with generative AI technologies, yet critical and reflective engagement opportunities remain scarce. While AI is often framed as a tool for automation, its broader pedagogical and ethical implications receive less attention. To address this gap, we implemented a critical co-discovery approach within an online AI in Education (AIEd) course to enhance educators' AI literacy. This illustrative case study examines which AI literacy components can be developed through critical co-discovery and how this approach fosters educators' reflective, critical, and participatory engagement with AI. Findings revealed that through co-discovery activities, educators co-constructed an understanding of AI concepts, ethical considerations, and context-specific applications. The study highlights the need for prolonged engagement with AI literacy by integrating it into teacher education program to ensure educators can critically navigate and assert their agency in AI's complex role in education.