Hormone-dependent transcriptional activation (AF-2) by the thyroid hormone beta receptor (TR beta) localizes to its carboxyl-terminal domain. A putative transactivation sequence within this domain was analyzed by mutating individual residues to alanine. Mutant receptor carboxyl-terminal domains were tested coupled to the heterologous DNA binding domain of Gal4. A single mutant receptor (E460A) showed normal hormone binding and activation, whereas several others (P453A, F455A, L456A, F459A) exhibited impaired transactivation which correlated with their reduced ligand binding. Two mutations (L454A, E457A) were able to dissociate these properties, generating transcriptionally defective mutant proteins with preserved hormone binding. A further conservative substitution (E457D) was also nonfunctional, and these three mutations were equally deleterious when tested in the context of full-length TR beta with a natural thyroid hormone response element containing promoter. This loss of activity was not due to altered DNA binding or expression of mutant receptors in cultured cells. They also retained the ability to recruit VP16-tagged retinoid X receptor in vivo as well as bind the basal transcription factors TFIIB and TBP in vitro. Our observations indicate that conserved hydrophobic (Leu454) and charged (Glu457) residues mediate AF-2 activity of TR beta, possibly via a co-activator that has yet to be identified.