Thyroid hormone receptors (TRs) mediate the regulation of gene transcription by thyroid hormone (T3) by binding to T3-responsive elements (TREs) in target genes. c-erbA alpha 2 is a C-terminal TR variant which does not bind T3 and is a dominant inhibitor of T3 action. When synthesized in Escherichia Coli, alpha 2 formed two TRE-binding complexes similar to the monomeric and homodimeric forms of TR alpha 1. However, alpha 2 did not bind nearly as well as TR alpha 1. Furthermore, alpha 2 failed to bind DNA with proteins that heterodimerized with TR alpha 1. TR alpha 1 and alpha 2 also did not bind DNA as heterodimers with one another. The differences between TR alpha 1 and alpha 2 were further analyzed by studying a variety of C-terminal mutants synthesized in reticulocyte lysates. Deletion of the last 20 of the 122 unique amino acids (aa) of alpha 2 increased its DNA binding to approximately the level of TR alpha 1, indicating that the C-terminus of alpha 2 is an inhibitory domain. This alpha 2 mutant (alpha 2 delta C) was still unable to heterodimerize with nuclear proteins, as were C-terminal deletion mutants of TR alpha 1. We hypothesized that fusion of TR alpha 1-specific sequences to the C-terminus of alpha 2 delta C would transfer the property of heterodimerization. Indeed, although alpha 2/alpha 1 chimeras containing the last 40 and 70 aa of TR alpha 1 failed to heterodimerize with nuclear proteins, addition of the last 100 or 150 aa of TR alpha 1 did render alpha 2 delta C heterodimerization competent. Thus, TR alpha 1 contains a C-terminal structure which is necessary for heterodimerization and can confer this property on alpha 2, which lacks this domain. The effects of the unique C-termini of TR alpha 1 and alpha 2 on their in vitro DNA binding have important implications for their mechanisms of action in vivo.