Among the most critical actions of thyroid hormone in man and other mammals are those exerted on brain development. Severe hypothyroidism during the neonatal period leads to structural alterations, including hypomyelination and defects of cell migration and differentiation, with long-lasting, irreversible effects on behavior and performance. A complex regulatory mechanism operates in brain involving regulation of the concentration of the active hormone, T3, and the control of gene expression. Most brain T3 is formed locally from its precursor, T4, by the action of type II deiodinase which is expressed in glial cells, tanycytes, and astrocytes. Type III deiodinase (DIII) is also involved in the regulation of T3 concentrations, especially during the embryonic and early post-natal periods. DIII is expressed in neurons and degrades T4 and T3 to inactive metabolites. The action of T3 is mediated through nuclear receptors, which are expressed mainly in neurons. The receptors are ligand-modulated transcription factors, and a number of genes have been identified as regulated by thyroid hormone in brain. The regulated genes encode proteins of myelin, mitochondria, neurotrophins and their receptors, cytoskeleton, transcription factors, splicing regulators, cell matrix proteins, adhesion molecules, and proteins involved in intracellular signaling pathways. The role of thyroid hormone is to accelerate changes of gene expression that take place during development. Surprisingly, null-mutant mice for the T3 receptors show almost no signs of central nervous system involvement, in contrast with the severe effects of hypothyroidism. The resolution of this paradox is essential to understand the role of thyroid hormone and its receptors in brain development and function.