Gene regulation by dioxins is mediated via the dioxin receptor, a ligand-dependent basic helix-loop-helix (bHLH)/PAS transcription factor. The latent dioxin receptor responds to dioxin signalling by forming an activated heterodimeric complex with a specific bHLH partner, Arnt, an essential process for target DNA recognition. We have analyzed the transactivating potential within this heterodimeric complex by dissecting it into individual subunits, replacing the dimerization and DNA-binding bHLH motifs with heterologous zinc finger DNA-binding domains. The uncoupled Arnt chimera, maintaining 84% of Arnt residues, forms a potent and constitutive transcription factor. Chimeric proteins show that the dioxin receptor also harbors a strong transactivation domain in the C terminus, although this activity was silenced by inclusion of 82 amino acids from the central ligand-binding portion of the dioxin receptor. This central repression region conferred binding of the molecular chaperone hsp90 upon otherwise constitutive chimeras in vitro, indicating that hsp90 has the ability to mediate a cis-repressive function on distant transactivation domains. Importantly, when the ligand-binding domain of the dioxin receptor remained intact, the ability of this hsp90-binding activity to confer repression became conditional rather than irreversible. Our data are consistent with a model in which crucial activities of the dioxin receptor, such as dimerization with Arnt and transactivation, are conditionally repressed by the central ligand- and-hsp90-binding region of the receptor. In contrast, the Arnt protein appears to be free from any repressive activity. Moreover, within the context of the dioxin response element (xenobiotic response element), the C terminus of Arnt conferred a potent, dominating transactivation function onto the native bHLH heterodimeric complex. Finally, the relative transactivation potencies of the individual dioxin receptor and Arnt chimeras varied with cell type and promoter architecture, indicating that the mechanisms for transcriptional activation may differ between these two subunits and that in the native complex the transactivation pathway may be dependent upon cell-specific and promoter contexts.