The C terminus of nuclear hormone receptors is a complex structure that contains multiple functions. We are interested in the mechanism by which thyroid hormone converts its receptor from a transcriptional silencer to an activator of transcription. Both regulatory functions are localized in the ligand binding domain of this receptor superfamily member. In this study, we have identified and characterized several functional domains within the ligand binding domain of the human thyroid hormone receptor (TR beta) conferring transactivation. Interestingly, these domains are localized adjacent to hormone binding sites. One activation domain, designated tau 4, is only 17 amino acids in length and is localized at the extreme C terminus of TR. Deletion of six amino acids of tau 4 resulted in a receptor that could still bind hormone but acted as a constitutive silencer, indicating that tau 4 is required for both transactivation and relief of the silencing functions. In addition, we performed in vivo competition experiments, the results of which suggest that in the absence of tau 4 or hormone, TR is bound by a corepressor protein(s) and that one role of hormone is to release corepressor from the receptor. We propose a general model in which the role of hormone is to induce a conformational change in the receptor that subsequently affects the action of tau 4, leading to both relief of silencing and transcriptional activation.