Many members of the type II nuclear receptor subfamily function as heterodimers with the retinoid X receptor (RXR). A permissive heterodimer (e.g. peroxisome proliferator-activated receptor/RXR) allows for ligand binding by both partners of the receptor complex. In contrast, RXR has been thought to be incapable of ligand binding in a nonpermissive heterodimer, such as that of thyroid hormone receptor (TR)/RXR, where it has been referred to as a silent partner. However, we recently presented functional evidence suggesting that RXR in the TR/RXR heterodimer can bind its natural ligand 9-cis-RA in cells. Here we extended our study of the interrelationship of TR and RXR. We examined the potential modulatory effect of RXR and its ligand on the activity of TR, primarily using a Gal4-TR chimera. This study led to several novel and unexpected findings: 1) heterodimerization of apo-RXRalpha (in the absence of 9-cis-RA) with Gal4-TR inhibits T3-mediated transactivation; 2) the inhibition of Gal4-TR activity by RXRalpha is further enhanced by 9-cis-RA; 3) two different RXR subtypes (alpha and beta) differentially modulate the activity of Gal4-TR; 4) the N-terminal A/B domains of RXR alpha and beta are largely responsible for their differential modulation of TR activity; and 5) the RXR ligand 9-cis-RA appears to differentially affect T3-mediated transactivation from the Gal4-TR/RXRalpha (which is inhibited by 9-cis-RA) and TRE-bound TR/RXRalpha (which is further activated by 9-cis-RA) heterodimers. Taken together, these results further support our recent proposal that the RXR component in a TR/RXR heterodimer is not silent and, more importantly, reveal novel aspects of regulation of the activity of the TR/RXR heterodimer by RXR and RXR ligand.