Alternative splicing of the rat THRB gene produces thyroid hormone (T3) receptor (TR) beta isoforms 1-3 and also TRdeltabeta3, which lacks the DNA binding domain but binds T3. TRbeta1 is ubiquitous; TRbeta2 is found predominantly in pituitary and hypothalamus, whilst TRbeta3 and TRdeltabeta3 are expressed widely in a ratio that is tissue-specific and T3-dependent. We investigated the function of the newly identified TRbeta3 and TRdeltabeta3 isoforms by transient transfection and gel shift assay. TRbeta3 was a more potent T3-induced activator of reporter genes containing malic enzyme (ME), alpha myosin heavy chain (MHC), direct repeat (DR4) or palindromic (PAL) T3 response elements (TREs) than TRbeta1 in Cos-7 and osteoblastic Ros17/2.8 cells. TRdeltabeta3 alone did not influence expression in either cell line. Nevertheless, when expressed in Cos-7 cells in equimolar ratios with TRbeta1 or TRbeta3, TRdeltabeta3 antagonised activation of all four TREs. In Ros17/2.8 cells, however, TRdeltabeta3 only antagonised TRbeta1-induction of MHC. In contrast, low ratios of TRdeltabeta3 relative to TRbeta3 increased induction of PAL and MHC. Similar potentiation of TRbeta3 was also seen on the PAL element in Ros17/2.8 cells. Preliminary analysis of TRdeltabeta3 interaction with TRalpha1 in Cos7 cells showed antagonism on ME, MHC and PAL elements. TRbeta3 bound to ME, MHC, DR4 and PAL TREs as a heterodimer with retinoid X receptor (RXR) in gel shift assays, but TRdeltabeta3/RXR heterodimers failed to bind these elements. TR/RXR binding to DNA was competed by TRdeltabeta3, suggesting that antagonism of TR action by increasing concentrations of TRdeltabeta3 involves competition for RXR. These data indicate that the functional activity of TRdeltabeta3 is dependent on cell type, TRE sequence and the ratio of TR isoforms present. We propose that TRdeltabeta3 functions as a pivotal modulator of T3 responsiveness by acting either as a potentiator of TR activity or a dominant negative antagonist.