Many members of the thyroid hormone/retinoid receptor subfamily (type II nuclear receptors) function as heterodimers with the retinoid X receptor (RXR). In heterodimers which are referred to as permissive, such as peroxisome proliferator activated receptor/RXR, both partners can bind cognate ligands and elicit ligand-dependent transactivation. In contrast, the thyroid hormone receptor (TR)/RXR heterodimer is believed to be nonpermissive, where RXR is thought to be incapable of ligand binding and is often referred to as a silent partner. In this report, we used a sensitive derepression assay system that we developed previously to reexamine the TR/RXR interrelationship. We provide functional evidence suggesting that in a TR/RXR heterodimer, the RXR component can bind its ligand in vivo. Ligand binding by RXR does not appear to directly activate the TR/RXR heterodimer; instead, it leads to a (at least transient or dynamic) dissociation of a cellular inhibitor(s)/corepressor(s) from its TR partner and thus may serve to modulate unliganded TR-mediated repression and/or liganded TR-mediated activation. Our results argue against the current silent-partner model for RXR in the TR/RXR heterodimer and reveal an unexpected aspect of cross regulation between TR and RXR.