In vivo, refeeding starved chickens stimulates transcription of the avian gene for malic enzyme in liver; in hepatocytes in culture, triiodothyronine (T3) and insulin stimulate transcription of this gene. In vivo, starvation, and in hepatocytes in culture, glucagon, medium-chain fatty acids (MCFA) and long-chain fatty acids (LCFA) inhibit transcription of the malic enzyme gene. We have defined a T3-response unit in the 5'-flanking DNA of the malic enzyme gene; it contains one major T3 response element and several minor ones; maximum responsiveness is dependent on the presence of all of these elements. LCFA probably act by inhibiting binding of T3 to its nuclear receptor. MCFA appear to act by a different mechanism. Inhibitory MCFA have chain lengths of six, seven or eight carbons; a common feature of other inhibitory compounds is that they can be metabolized to MCFA. Eight-carbon fatty acids with a hydroxyl on the 2- or 3-carbon are more potent inhibitors than octanoate, whereas 2-bromo-fatty acids and 2-hydroxy hexanoate are not inhibitory. In transfection experiments with a large variety of constructs derived from the malic enzyme 5'-flanking DNA, the ability of fatty acids to inhibit promoter function localizes to regions of DNA that contain T3REs. Promoter function of artificial T3REs also is inhibited by MCFA. Inhibition of promoter function using malic enzyme DNA is relatively constant in magnitude irrespective of the size of the T3 response. We postulate that MCFA directly regulates one of the functions of the T3 receptor.