The human estrogen receptor alpha (ER alpha) and the recently identified ER beta share a high degree of amino acid homology; however, there are significant differences in regions of these receptors that would be expected to influence transcriptional activity. Consequently, we compared the mechanism(s) by which these receptors regulate target gene transcription, and evaluated the cellular consequences of coexpression of both ER subtypes. Previously, it has been determined that ER alpha contains two distinct activation domains, ER alpha-AF-1 and ER alpha-AF-2, whose transcriptional activity is influenced by cell and promoter context. We determined that ER beta, like ER alpha, contains a functional AF-2, however, the ER beta-AF-2 domain functions independently within the receptor. Of additional significance was the finding that ER beta does not contain a strong AF-1 within its amino-terminus but, rather, contains a repressor domain that when removed, increases the overall transcriptional activity of the receptor. The importance of these findings was revealed when it was determined that ER beta functions as a transdominant inhibitor of ER alpha transcriptional activity at subsaturating hormone levels and that ER beta decreases overall cellular sensitivity to estradiol. Additionally, the partial agonist activity of tamoxifen manifest through ER alpha in some contexts was completely abolished upon coexpression of ER beta. In probing the mechanisms underlying ER beta-mediated repression of ER alpha transcriptional activity we have determined that 1) ER alpha and ER beta can form heterodimers within target cells; and 2) ER beta interacts with target gene promoters in a ligand-independent manner. Cumulatively, these data indicate that one role of ER beta is to modulate ER alpha transcriptional activity, and thus the relative expression level of the two isoforms will be a key determinant of cellular responses to agonists and antagonists.