To elucidate the effect of Graves' immunoglobulin G (IgG) on iodothyronine deiodination in the thyroid, we examined the characteristics of iodothyronine 5'-deiodinating (I-5'-D) activity in FRTL-5 rat thyroid cells and the effect of Graves' IgG on its activity. FRTL-5 cells were sonicated and incubated with 0.5 mumol/L rT3 with a tracer amount of [125I]rT3 in 0.1 mol/L phosphate buffer containing 1 mmol/L EDTA and 0.5 mmol/L dithiothreitol. The released 125I- was separated by Dowex-50WX2 column and counted. The amount of I- released was tissue, incubation time, temperature, and pH dependent, strongly suggesting that the reaction is enzymatic. The activity was completely inhibited by propylthiouracil. The Km value for rT3 was approximately 0.32 microM when analyzed by Lineweaver-Burk plot. TSH, dibutyl cAMP, and Graves' IgG induced I-5'-D activity in a dose-dependent manner. However, cycloheximide (5 mumol/L) abolished the stimulating effects of these agents on I-5'-D activity. These results suggest that TSH, dibutyl cAMP, and Graves' IgG induced I-5'-D activity through the synthesis of new enzyme protein. A significant positive correlation between thyroid-stimulating antibody activity assayed by measuring cAMP production using FRTL-5 cells and I-5'-D activity induced by the Graves' IgG in 10 patients with untreated Graves' disease was observed (r = 0.79; P less than 0.01). The present findings suggest that type I iodothyronine 5'-deiodinase exists in FRTL-5 rat thyroid cells and that Graves' IgG as well as TSH stimulate the activity at least in part by activating adenylate cyclase.