SHP (short heterodimer partner) is an unusual orphan nuclear receptor that contains a putative ligand-binding domain but lacks a conserved DNA-binding domain. Although no conventional receptor function has yet been identified, SHP has been proposed to act as a negative regulator of nuclear receptor signaling pathways, because it interacts with and inhibits DNA binding and transcriptional activity of various nonsteroid receptors, including thyroid hormone and retinoid receptors. We show here that SHP interacts directly with agonist-bound estrogen receptors, ERalpha and ERbeta, and inhibits ER-mediated transcriptional activation. SHP specifically targets the ligand-regulated activation domain AF-2 and competes for binding of coactivators such as TIF2. Thus, SHP may represent a new category of negative coregulators for ligand-activated nuclear receptors. SHP mRNA is widely expressed in rat tissues including certain estrogen target tissues, and subcellular localization studies demonstrate that SHP is a nuclear protein, suggesting a biological significance of the SHP interactions with ERs. Taken together, these results identify ERs as novel SHP targets and suggest that competition for coactivator-binding is a novel mechanism by which SHP may inhibit nuclear receptor activation.