The v-erbA oncogene encodes an altered form of the nuclear receptor of the thyroid hormone triiodothyronine (T3). This altered receptor is unable to bind T3, and blocks the differentiation of chicken erythrocyte progenitor cells. To identify the cellular target genes of v-ErbA in the transformed cells, we analysed the expression of several genes in normal erythrocytic cells exposed to T3, and found that the gene encoding carbonic anhydrase II is transcriptionally activated by the hormone. In contrast, this gene is repressed in erythroleukemic cells transformed by the v-erbA product. To investigate in more details the effects of v-ErbA, we constructed a mutant of v-ErbA in which we restored the ability to bind T3. This mutant developed its oncogenicity only in the absence of T3. Upon binding of T3, the transformed cells differentiated and immediately expressed the carbonic anhydrase II gene. These data show that v-ErbA directly inhibits the transcription of the carbonic anhydrase II gene, presumably by competing with normal T3 receptors. The carbonic anhydrase II gene is the first identified target gene of the v-ErbA oncoprotein in erythroleukemic cells.