Retinoic-acid receptor-alpha (RAR-alpha) and peroxisome proliferator-activated receptor-gamma (PPAR-gamma) are members of the nuclear-receptor superfamily that bind to DNA as heterodimers with retinoid-X receptors (RXRs)(1,2). PPAR-RXR heterodimers can be activated by PPAR or RXR ligands(3), whereas RAR-RXR heterodimers are selectively activated by RAR ligands only, because of allosteric inhibition of the binding of ligands to RXR by RAR(4,5). However, RXR ligands can potentiate the transcriptional effects of RAR ligands in cells(6), Transcriptional activation by nuclear receptors requires a carboxy-terminal helical region, termed activation function-2 (AF-2) (refs 7-9), that forms part of the ligand-binding pocket and undergoes a conformational change required for the recruitment of co-activator proteins, including NCoA-1/SRC-1 (refs 10-17), Here we show that allosteric inhibition of RXR results from a rotation of the RXR AF-2 helix that places it in contact with the RAR coactivator-binding site. Recruitment of an LXXLL motif of SRC-1 to RAR in response to ligand displaces the RXR AF-2 domain, allowing RXR ligands to bind and promote the binding of a second LXXLL motif from the same SRC-1 molecule, These results may partly explain the different responses of nuclear-receptor heterodimers to RXR-specific ligands.