The peroxisome proliferator-activated receptors (PPAR) and thyroid hormone receptors (TR) are members of the nuclear receptor superfamily, which regulate lipid metabolism and tissue differentiation. In order to bind to DNA and activate transcription, PPAR requires the formation of heterodimers with the retinoid X receptor (RXR). In addition to activating transcription through its own response elements, PPAR is able to selectively down-regulate the transcriptional activity of TR, but not vitamin D receptor. The molecular basis of this functional interaction has not been fully elucidated. By means of site-directed mutagenesis of hPPAR alpha we mapped its inhibitory action on TR to a leucine zipper-like motif in the ligand binding domain of PPAR, which is highly conserved among all subtypes of this receptor and mediates heterodimerization with RXR. Replacement of a single leucine by arginine at position 433 of hPPAR alpha (L433R) abolished heterodimerization of PPAR with RXR and consequently its trans-activating capacity. However, a similar mutation of a leucine residue to arginine at position 422 showed no alteration of heterodimerization, DNA binding, or transcriptional activation. The dimerization deficient mutant L433R was no longer able to inhibit TR action, demonstrating that the selective inhibitory effect of PPAR results from the competition for RXR as well as possibly for other TR-auxiliary proteins. In contrast, abolition of DNA binding by a mutation in the P-box of PPAR (C122S) did not eliminate the inhibition of TR trans-activation, indicating that competition for DNA binding is not involved. Additionally, no evidence for the formation of PPAR:TR heterodimers was found in co-immunoprecipitation experiments. In summary, we have demonstrated that PPAR selectively inhibits the transcriptional activity of TRs by competition for RXR and possibly non-RXR TR-auxiliary proteins. In contrast, this functional interaction is independent of the formation of PPAR:TR heterodimers or competition for DNA binding.