Type 3 iodothyronine deiodinase (D3) catalyzes the conversion of T4 and T3 to inactive metabolites. It is highly expressed in placenta and thus can regulate circulating fetal thyroid hormone concentrations throughout gestation. We have cloned and expressed a 2.1-kb human placental D3 cDNA which encodes a 32-kD protein with a Km of 1.2 nM for 5 deiodination of T3 and 340 nM for 5' deiodination of reverse T3. The reaction requires DTT and is not inhibited by 6n-propylthiouracil. We quantitated transiently expressed D3 by specifically labeling the protein with bromoacetyl [125I]T3. The Kcat/Km ratio for 5 deiodination of T3 was over 1,000-fold that for 5' deiodination of reverse T3. Human D3 is a selenoenzyme as evidenced by (a) the presence of an in frame UGA codon at position 144, (b) the synthesis of a 32-kD 75Se-labeled protein in D3 cDNA transfected cells, and (c) the presence of a selenocysteine insertion sequence element in the 3' untranslated region of the mRNA which is required for its expression. The D3 selenocysteine insertion sequence element is more potent than that in the type 1 deiodinase or glutathione peroxidase gene, suggesting a high priority for selenocysteine incorporation into this enzyme. The conservation of this enzyme from Xenopus laevis tadpoles to humans implies an essential role for regulation of thyroid hormone inactivation during embryological development.