The estrogen receptors (ER) alpha and beta are important ligand-mediated transcription factors known to play significant biological roles in numerous tissues including bone. Despite the high homology shared by these receptors, recent studies have suggested that their function is largely unique. Although these receptors have been studied in detail for more than a decade, little data exist concerning the mechanisms by which these two proteins regulate distinct sets of genes. Using the TGFbeta-inducible early gene-1 (TIEG) as a model, we demonstrate that TIEG is rapidly induced in response to estrogen in osteoblasts by ERbeta, but not ERalpha. We have identified the regulatory elements utilized by ERbeta and have demonstrated that ERbeta recruits steroid receptor coactivator (SRC)1 and SRC2 to this regulatory region. Additionally, deletion of the ERbeta-activation function 1 (AF1) domain drastically decreases the estrogen induction of TIEG. Through the use of chimeric receptors, we have demonstrated that the AF1 domain of ERbeta is responsible for recruiting SRC1 and SRC2 and inducing the expression of TIEG in osteoblasts. Finally, SRC1, but not SRC2, is essential for TIEG induction by ERbeta. Overall, these data demonstrate that the estrogen induction of TIEG is ERbeta specific and that the AF1 domain of ERbeta confers this specificity. Finally, a novel and important role for ERbeta's AF1 is implicated in the recruitment of specific coactivators, suggesting that the AF1 may play a significant role in conferring the differences in regulation of gene expression by these two receptors.