RETINOIC acid receptors (RARs) and retinoid X receptors (RXRs) regulate transcription by binding to response elements in target genes that generally consist of two direct repeat half-sites of consensus sequence AGGTCA (ref. 1). RAR/RXR heterodimers activate transcription in response to all-irans or 9-cis retinoic acid by binding to direct repeats spaced by five base pairs (DR5 elements)(2-8), such that RAR occupies the downstream half-site(9-12). RXR homodimers activate transcription in response to 9-cis retinoic acid by binding to direct repeats spaced by one base pair (DR1 elements)(8,13,14). Although RXR/RAR heterodimers bind to DR1 elements with higher affinity than RXR homodimers, in most contexts they are unable to activate transcription in response to either all-trans or 9-cis retinoic acid(3-5). AS a result, RARs inhibit RXR-dependent transcription from these sites(13,15). We report that the switching of the RAR from an activator to an inhibitor of retinoid-dependent transcription requires that it be bound to the upstream half-site of DR1 elements and that it allosterically block the binding of ligand to the RXR.