Several nuclear receptors including the all-trans retinoic acid receptor RAR, form heterodimers with the 9-cis retinoic acid receptor, RXR. RXR-RAR heterodimers show an impressive flexibility in DNA binding and can recognize palindromic, inverted palindromes and direct repeats of the core half-site sequence AGGTCA. Dimerization interfaces in the DNA-binding domains of RXR, RAR, and thyroid hormone receptor (TR) that promote selective binding to strictly spaced direct repeats have previously been identified. However, an additional dimerization domain is present within the ligand-binding domains (LBDs) of these receptors. Here we localize a transferable 40-amino acid region within the LBDs of RXR, RAR, TR, and chicken ovalbumin upstream promoter transcription factor that is critical for determining identity in the heterodimeric interaction and for high-affinity DNA binding. This region overlaps almost perfectly with a helical segment in the RXR LBD crystal structure that was recently demonstrated to be part of the dimer interface. Our data suggest a sequential pathway for nuclear receptor dimerization whereby the LBD dimerization interface initiates the formation of solution heterodimers that, in turn, acquire the capacity to bind to a number of differently organized repeats. Formation of a second dimer interface within the DNA-binding domain (DBD) restricts receptors to direct repeat targets. Accordingly, the combination of an obligatory (LBD) and an optional (DBD) dimerization domain imparts a dynamic DNA-binding potential to the heterodimerizing receptors that both increases the diversity of the hormonal response as well as providing a restricted set of target sequences in direct repeat elements that ensures physiological specificity.