The recent discovery that an additional estrogen receptor subtype is present in various rat tissues has advanced our understanding of the mechanisms underlying estrogen signaling. Here we report on the cloning of the cDNA encoding the mouse homolog of estrogen receptor-beta (ER beta) and the functional characterization of mouse ER beta protein. ER beta is shown to have overlapping DNA-binding specificity with that of the estrogen receptor-alpha (ER alpha) and activates transcription of reporter gene constructs containing estrogen-response elements in transient transfections in response to estradiol. Using a mammalian two-hybrid system, the formation of heterodimers of the ER beta and ER alpha subtypes was demonstrated. Furthermore, ER beta and ER alpha form heterodimeric complexes with retained DNA-binding ability and specificity in vitro. In addition, DNA binding by the ER beta/ER alpha heterodimer appears to be dependent on both subtype proteins. Taken together these results suggest the existence of two previously unrecognized pathways of estrogen signaling; I, via ER beta in cells exclusively expressing this subtype, and II, via the formation of heterodimers in cells expressing both receptor subtypes.