Thyroid hormones regulate brain development and function through the control of gene expression, mediated by binding of T₃ to nuclear receptors. Brain T₃ concentration is tightly controlled by homeostatic mechanisms regulating transport and metabolism of T₄ and T₃. We have examined the role of the inactivating enzyme type 3 deiodinase (D3) in the regulation of 43 thyroid hormone-dependent genes in the cerebral cortex of 30-d-old mice. D3 inactivation increased slightly the expression of two of 22 positively regulated genes and significantly decreased the expression of seven of 21 negatively regulated genes. Administration of high doses of T₃ led to significant changes in the expression of 12 positive genes and three negative genes in wild-type mice. The response to T₃ treatment was enhanced in D3-deficient mice, both in the number of genes and in the amplitude of the response, demonstrating the role of D3 in modulating T₃ action. Comparison of the effects on gene expression observed in D3 deficiency with those in hypothyroidism, hyperthyroidism, and type 2 deiodinase (D2) deficiency revealed that the negative genes are more sensitive to D2 and D3 deficiencies than the positive genes. This observation indicates that, in normal physiological conditions, D2 and D3 play critical roles in maintaining local T₃ concentrations within a very narrow range. It also suggests that negatively and positively regulated genes do not have the same physiological significance or that their regulation by thyroid hormone obeys different paradigms at the molecular or cellular levels.