RETINOIC acid receptors (RARs) and retinoid-X receptors (RXRs) activate or repress transcription by binding as heterodimers to DNA-response elements that generally consist of two direct repeat half-sites of consensus sequence AGGTCA (reviewed in ref. 1). On response elements consisting of direct repeats spaced by five base pairs (DR + 5 elements), RAR/RXR heterodimers activate transcription in response to RAR-specific ligands, such as all-trans-retinoic acid (RA)(2). In contrast, on elements consisting of direct repeats spaced by one base pair (DR + 1 elements), RAR/RXR heterodimers exhibit little or no response to activating ligands and repress RXR-dependent transcription(3). Here we show that ligand-dependent transactivation by RAR on DR + 5 elements requires the dissociation of a new nuclear receptor co-repressor, N-CoR, and recruitment of the putative co-activators p140 and p160 (refs 4, 5). Surprisingly, on DR + 1 elements, N-CoR remains associated with RAR/RXR heterodimers even in the presence of RAR ligands, resulting in constitutive repression. These observations indicate that DNA-response elements can allosterically regulate RAR-co-repressor interactions to determine positive or negative regulation of gene expression.