In this study we have investigated the role of the N-terminal region of thyroid hormone receptors (TRs) in thyroid hormone (TH)-dependent transactivation of a thymidine kinase promoter containing TH response elements composed either of a direct repeat or an inverted palindrome. Comparison of rat TR beta 1 with TR beta 2 provides an excellent model since they share identical sequences except for their N termini. Our results show that TR beta 2 is an inefficient TH-dependent transcriptional activator. The degree of transactivation corresponds to that observed for the mutant TR delta N beta 1/2, which contains only those sequences common to TR beta 1 and TR beta 2. Thus, TH-dependent activation appears to be associated with two separate domains. The more important region, however, is embedded in the N-terminal domain. Furthermore, the transactivating property of TR alpha 1 was also localized to the N-terminal domain between amino acids 19 and 30. Using a coimmunoprecipitation assay, we show that the differential interaction of the N terminus of TR beta 1 and TR beta 2 with transcription factor IIB correlates with the TR beta 1 activation function. Hence, our results underscore the importance of the N-terminal region of TRs in TH-dependent transactivation and suggest that a transactivating signal is transmitted to the general transcriptional machinery via a direct interaction of the receptor N-terminal region with transcription factor IIB.