Deiodination is a critical process by which the minimally active thyroxine (T(4)) molecule is converted into the favorite ligand for thyroid hormone (TH) receptors, triiodothyronine (T(3)). The iodothyronine deiodinases type 1, 2, and 3 (D1, D2, and D3) constitute a potent mechanism of TH activation (D1 and D2) or inactivation (D3), which functions by tissue specifically regulating TH bioavailability. D2 and D3 are widely expressed and in a dynamically and tightly coordinated fashion, thereby allowing cells to customize their own TH activity. D3, the major T(3) and T(4) inactivating deiodinase, catalyzes their conversion to 3,3'-diiodothyronine and to reverse T(3) respectively. According to common wisdom, D3 plays a major role in lowering serum TH concentrations during development, as supported by the much wider D3 tissue expression in the embryo structures than in the adult tissues. However, several recent studies show that D3 is reexpressed in adult life in various pathophysiological contexts, which strengthens the concept that cell-specific TH inactivation is a critical mediator in cellular TH metabolism. This review focuses on the progress made in understanding the physiological function and significance of D3. It summarizes the intriguing evidence that D3 plays a pivotal role in defining local TH concentration in the developing fetus and in several conditions in adult life.