The most frequent genetic alterations described thus far in human papillary thyroid carcinomas are somatic rearrangements of the RET proto-oncogene, which generate the chimeric RET/PTC oncogenes. We recently found that the expression of the RET/PTC1 oncogene blocked the expression of the thyroid-differentiated phenotype in rat thyroid epithelial cell line PC CI 3 (PC). Here, we show that this block occurs at a transcriptional level; indeed, the thyroid-specific thyroglobulin and thyroperoxidase gene promoters were inactive in PC-PTC cells. Specific transcription factors, namely, TTF-1 and Pax-8, regulate the expression of differentiated functions in thyroid cells. Here, we show that Pax-8 is expressed at reduced levels in PC-PTC cells and that its adoptive overexpression is unable to restore the activity of target promoters. In contrast, TTF-1 expression is unaltered in PC-PTC cells; however, by using a synthetic promoter that contains its specific target sequence, we demonstrate that TTF-1 is inactive in PC-PTC cells. We conclude that the RET/PTC1 oncogene alters the expression of the thyroid-differentiated phenotype by at least two different mechanisms, ie., down-regulation of Pax-8 protein and mRNA expression and impaired function of TTF-1 and Pax-8, which occurs at a posttranslational level.