The thyroid gland predominantly secretes the pro-hormone thyroxine (T(4)) that is converted to the active hormone 3,5,3'-l-triiodothyronine (T(3)) in target cells. Conversion of T(4) to T(3) is catalyzed by the type 2 iodothyronine deiodinase enzyme (DIO2), and T(3) action in target tissues is determined by DIO2-regulated local availability of T(3) to its nuclear receptors, TRα and TRβ. Studies of Dio2 knockout mice have revealed new and important roles for the enzyme during development and in adulthood in diverse tissues including the cochlea, skeleton, brown fat, pituitary, and hypothalamus. In this review, we discuss the molecular mechanisms by which DIO2 controls intracellular T(3) availability and action.