To assess thyroid hormone receptor (TR)-mediated activation of transcription in yeast in the presence or absence of thyroid hormone (T3), we developed a co-expression system using a TR-beta 1 expression vector and a reporter plasmid containing a 16 base pair palindromic thyroid hormone response element (TRE) upstream from a proximal CYC1 promoter that was fused to the beta-galactosidase lac Z gene of Escherichia coli. Although TR-beta 1 functions as a repressor in most mammalian systems, using our system we observed a unique thyroid hormone-independent transcriptional response indicating that wild TR-beta 1 acted as a constitutive activator in yeast; the addition of 1 microM T3 induced a moderate but significant (p less than 0.01) 25-40% further increase in transcriptional activity. Using a series of rat TR-beta 1 mutant constructs, we found that deletion of domain D and portions of E completely eliminated transcriptional activity, whereas truncations of domain F and E permitted a partial (20-40%) response compared to wild TR-beta 1 in the presence or absence of T3. These observations indicate that TR-beta 1 functions as an activator in yeast and that domains D,E and F play important interactive roles in its hormone-independent gene activation with the D domain likely being the most essential. Furthermore, our results suggest that the different transcriptional property of TR-beta 1 in yeast compared to mammalian cells i.e. activator vs repressor function, is likely determined by transcriptional factor differences which are dependent upon cellular origin.