The avian v-erbA protein is an important example of a dominant negative oncogene. It has been identified as a highly mutated form of its cellular homolog, the thyroid hormone receptor alpha (TR-alpha), and its biological activity has been correlated with its repressor function on certain receptor-regulated genes. Although v-erbA has lost the hormone responsiveness of its cellular homolog, it has retained DNA-binding activity, and it has been implied that this function is required for repression and transformation. Here we demonstrate that v-erbA forms heterodimers with the retinoid X receptor (RXR-alpha). Only heteromeric v-erbA-RXR-alpha complexes show DNA-binding strong enough to account for its potent repressor function. In addition, v-erbA-RXR-alpha heterodimers specifically bind natural thyroid hormone-responsive elements (TREs) but not retinoic acid-responsive elements (RAREs). Repression of TRE-controlled gene expression by v-erbA requires the presence of RXR-alpha with the natural TREs tested. In contrast, natural RAREs investigated here do not bind the v-erbA-RXR-alpha heterodimer and also are not significantly repressed by v-erbA. Carboxy-terminal mutations that abolish v-erbA-RXR-alpha heterodimer formation also abolish v-erbA repressor activity. These data suggest that interaction of v-erbA with RXRs or similar auxiliary receptors is essential for the dominant negative activity of the v-erbA oncogene.