Rat thyroid lobes or hemilobes have been incubated in Krebs-Ringer phosphate buffer containing labeled T4 and/or T3, and the products were separated by paper chromatography. Labeled T4 was actively degraded; about half of the T4 metabolized was recovered as T3. Labeled T3 was also metabolized, but less rapidly than T4. Other than T3 produced from T4, the major products from both hormones were inorganic iodide and iodoprotein; the latter was presumably a secondary product of iodide organification because its formation was inhibited by hypoxia and methimazole. Feeding the animals a low iodine diet increased their hormone-metabolizing activity. Incubation under nitrogen did not affect the rate of T4 degradation, but partially inhibited T3 degradation. Degradation of both hormones was unchanged in the presence of methimazole and ascorbate, was markedly inhibited by 1 mM propylthiouracil (PTU), and was partially inhibited by azide and cyanide. Thyroid tissues concentrated both hormones, tissue to medium gradients averaging 5.4 for T4 and 20.7 for T3; none of the conditions affecting hormone degradation (incubation under nitrogen or with azide, cyanide, or PTU) significantly altered these gradients. It is concluded that the thyroid can metabolize both of its major hormones by a system distinct from thyroidal peroxidase. Hormone metabolism, therefore, is a potentially important factor in net hormone secretion. In its resistance to hypoxia, methimazole, and ascorbate and its sensitivity to PTU, the thyroid's system for generating T3 from T4 resembles T3-forming systems of liver and kidney. The thyroid, because T3 formation is its dominant pathway for T4 metabolism, may provide a useful model for study of this reaction.