Nuclear receptors are ligand-modulated transcription factors that transduce the presence of lipophilic ligands into changes in gene expression. Nuclear receptor activity is regulated by ligand-induced interactions with coactivator or corepressor molecules. From a positive hormone response element (pHRE) and in the absence of hormone, corepressors SMRT and N-CoR are bound to some nuclear receptors such as the thyroid hormone (T3Rs) and retinoic acid receptors and mediate inhibition of basal levels of transcription. Ligand binding results in dissociation of corepressors and association of coactivators, resulting in the reversal of inhibition and a net activation of transcription. However, the role of cofactors on the activity of nuclear receptors from negative HREs (nHREs) is poorly understood. Here we show that corepressor SMRT can act as a potent coactivator for T3Ralpha from a nHRE; N-CoR has a similar but significantly attenuated activity. Mutagenesis of residues in the hinge region of T3Ralpha that block binding of SMRT and N-CoR inhibits ligand-independent transcriptional activation by T3Ralpha from a nHRE. These mutations also abrogate SMRT-mediated increase in transcriptional activity by T3Ralpha at a nHRE without significantly affecting ligand-dependent activation at a pHRE. Partial protease digestion coupled to the mobility shift assay indicate differences in the conformation of T3Ralpha-SMRT complexes bound to a pHRE versus a nHRE. These results suggest that allosteric changes resulting from binding of T3Ralpha to different response elements, i.e. pHREs versus nHREs, dictate whether a cofactor will function as a coactivator or a corepressor. This, in turn, greatly expands the repertoire of mechanisms used in modulating transcription without the need for expression of new regulatory molecules.