The estrogen receptor (ER) is a ligand-activated transcription factor that acts as a homodimer. Truncated estrogen receptor product-1 (TERP-1) is a pituitary-specific, estrogen-induced, isoform of rat ERα that is transcribed from a unique start site and contains only the C-terminal region of the full- length receptor. TERP-1 does not affect transcription directly but suppresses ligand-activated ERα and ERβ activity. Because TERP-1 contains a dimerization domain and part of the coactivator binding pocket, we hypothesized that it modulates ER function by direct interactions with full- length ER or the steroid receptor coactivator, SRC-1. Localization studies demonstrate that TERP-1 is present in the cytoplasm and nucleus of transfected cells and colocalizes with nuclear ER. Protein binding studies show that TERP-1 forms heterodimers with both ERα and ERβ and inhibits ERα binding to its cognate DNA response element. TERP-1 also binds SRC-1, and increasing levels of SRC-1 decrease the TERP-1-ERα interactions, in agreement with the rescue of TERP-1-suppressed ERα transcriptional activity by SRC-1. Mutational analysis of TERP-1 and ERα in the activation helix and the AF-2 dimerization helix indicates that TERP-1 acts predominantly through dimerization with ERα. Therefore, TERP-1 suppression of ER transcription occurs primarily by formation of inactive heterodimers and secondarily by competition for coactivators.