Thyroid hormone receptors are cellular homologues (c-erbAs) of the v-erbA oncoprotein of the avian erythroblastosis virus. Exclusive of the viral gag region, v-erbA differs from the chick c-erbA-alpha receptor by two amino acid changes N-terminal of the DNA binding domain, two amino acid changes in the DNA binding domain, nine amino acid changes in the C-terminal region corresponding to the ligand binding domain of c-erbA, and a nine-amino acid deletion near the C terminus. v-erbA does not bind thyroid hormone and when expressed in cells inhibits the activity of wild-type thyroid hormone receptors. We reported previously that mutants of chick c-erbA/thyroid hormone receptor which lack the DNA binding domain (DBD-) inhibit transcriptional activition by wild-type thyroid hormone and retinoic acid receptors (Forman, B. M., Yang, C.-R., Au, M., Casanova, J., Ghysdael, J., and Samuels, H. H. (1989) Mol. Endocrinol. 3, 1610-1626). This dominant negative activity mapped to a series of hydrophobic heptad motifs which are conserved in the C terminus of these receptors and have been suggested to play a role in receptor dimerization. In this study we show that unlike DBD- c-erbA, DBD- v-erbA does not block receptor activity, suggesting that v-erbA acts by competing for DNA response elements rather than by formation of nonfunctional v-erbA/c-erbA heterodimers. This difference in activity was localized to a single Pro to Ser change in v-erbA just N-terminal of the last heptad motif. Introduction of this Pro to Ser change into DBD- c-erbA resulted in a protein which was inactive both functionally and in blocking receptor dimer formation in vitro.