Chicken ovalbumin upstream promoter-transcription factor (COUP-TF) represses the transcriptional activity of a number of nuclear receptors, including that of retinoid receptors (RAR and RXR) and thyroid hormone receptors (TR). Since COUP-TF is capable of binding to DNA in vitro either as a homodimer or as a heterodimer with RXR or TR, it has not been possible to distinguish between competitive DNA binding and heterodimer formation as a mechanism to account for the repression. Using a two-hybrid system we have investigated the dimerisation properties of COUP-TF II in intact cells. In conditions where COUP-TF II homodimers and RXR alpha-RAR alpha heterodimers were formed we were unable to detect the formation of heterodimers between COUP-TF II and RXR alpha. Moreover, we were unable to detect an interaction between COUP-TF II and RXR alpha on DNA. Similarly COUP-TF II homodimers and RXR alpha-TR beta heterodimers are favoured over COUP-TF II-TR beta heterodimers. We conclude that the formation of functionally inactive heterodimers is unlikely to represent a general mechanism by which COUP-TF represses the transcriptional activity of nuclear receptors and favour a model in which repression is mediated by COUP-TF homodimers competing for binding to DNA.