Alternative splicing of the human glucocorticoid receptor gene generates a nonhormone binding splice variant (hGRbeta) that differs from the wild-type receptor (hGRalpha) only at the carboxyl terminus. Previously we have shown that hGRbeta inhibits the transcriptional activity of hGRalpha, which is consistent with reports of elevated hGRbeta expression in patients with generalized and tissue-specific glucocorticoid resistance. The potential role of hGRbeta in the regulation of target cell sensitivity to glucocorticoids prompted us to further evaluate its dominant negative activity in other model systems and to investigate its mode of action. We demonstrate in multiple cell types that hGRbeta inhibits hGRalpha-mediated activation of the mouse mammary tumor virus promoter. In contrast, the ability of the progesterone and androgen receptors to activate this promoter is only weakly affected by hGRbeta. hGRbeta also inhibits hGRalpha-mediated repression of an NF-kappaB-responsive promoter but does not interfere with homologous down-regulation of hGRalpha. We show that hGRbeta can associate with the heat shock protein hsp90 although with lower affinity than hGRalpha. In addition, hGRbeta binds GRE-containing DNA with a greater capacity than hGRalpha in the absence of glucocorticoids. Glucocorticoid treatment enhances hGRalpha, but not hGRbeta, binding to DNA. Moreover, we demonstrate that hGRalpha and hGRbeta can physically associate with each other in a heterodimer. Finally, we show that the dominant negative activity of hGRbeta resides within its unique carboxyl-terminal 15 amino acids. Taken together, our results suggest that formation of transcriptionally impaired hGRalpha-hGRbeta heterodimers is an important component of the mechanism responsible for the dominant negative activity of hGRbeta.