The human estrogen receptor alpha (ERalpha) and the recently identified ERbeta share a high degree of amino acid homology; however, there are significant differences in regions of these receptors that would be expected to influence transcriptional activity. Consequently, we compared the mechanism(s) by which these receptors regulate target gene transcription, and evaluated the cellular consequences of coexpression of both ER subtypes. Previously, it has been determined that ERalpha contains two distinct activation domains, ERalpha-AF-1 and ERalpha-AF-2, whose transcriptional activity is influenced by cell and promoter context. We determined that ERbeta, like ERalpha, contains a functional AF-2, however, the ERbeta-AF-2 domain functions independently within the receptor. Of additional significance was the finding that ERbeta does not contain a strong AF-1 within its amino-terminus but, rather, contains a repressor domain that when removed, increases the overall transcriptional activity of the receptor. The importance of these findings was revealed when it was determined that ERbeta functions as a transdominant inhibitor of ERalpha transcriptional activity at subsaturating hormone levels and that ERbeta decreases overall cellular sensitivity to estradiol. Additionally, the partial agonist activity of tamoxifen manifest through ERalpha in some contexts was completely abolished upon coexpression of ERbeta. In probing the mechanisms underlying ERbeta-mediated repression of ERalpha transcriptional activity we have determined that 1) ERalpha and ERbeta can form heterodimers within target cells; and 2) ERbeta interacts with target gene promoters in a ligand-independent manner. Cumulatively, these data indicate that one role of ERbeta is to modulate ERalpha transcriptional activity, and thus the relative expression level of the two isoforms will be a key determinant of cellular responses to agonists and antagonists.