The human estrogen receptor α (ERα) and the recently identified ERβ 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 ERα contains two distinct activation domains, ERα-AF-1 and ERα-AF-2, whose transcriptional activity is influenced by cell and promoter context. We determined that ERβ, like ERα, contains a functional AF-2, however, the ERβ-AF-2 domain functions independently within the receptor. Of additional significance was the finding that ERβ 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 ERβ functions as a transdominant inhibitor of ERα transcriptional activity at subsaturating hormone levels and that ERβ decreases overall cellular sensitivity to estradiol. Additionally, the partial agonist activity of tamoxifen manifest through ERα in some contexts was completely abolished upon coexpression of ERβ. In probing the mechanisms underlying ERβ-mediated repression of ERα transcriptional activity we have determined that 1) ERα and ERβ can form heterodimers within target cells; and 2) ERβ interacts with target gene promoters in a ligand-independent manner. Cumulatively, these data indicate that one role of ERβ is to modulate ERα transcriptional activity, and thus the relative expression level of the two isoforms will be a key determinant of cellular responses to agonists and antagonists.