Type III iodothyronine deiodinase (D3) catalyzes the inner ring deiodination (IRD) of T4 and T3 to the inactive metabolites rT3 and 3,3'-diiodothyronine (3,3'-T2), respectively. Here we describe the cloning and characterization of complementary DNA (cDNA) coding for D3 in fish (Oreochromis niloticus, tilapia). This cDNA contains 1478 nucleotides and codes for a protein of 267 amino acids, including a putative selenocysteine (Sec) residue, encoded by a TGA triplet, at position 131. The deduced amino acid sequence shows 57-67% identity with frog, chicken, and mammalian D3, 33-39% identity with frog, fish (Fundulus heteroclitus) and mammalian D2, and 30-35% identity with fish (tilapia), chicken, and mammalian D1. The 3' UTR contains a putative Sec insertion sequence (SECIS) element. Recombinant tilapia D3 (tD3) expressed in COS-1 cells and native tD3 in tilapia brain microsomes show identical catalytic activities, with a strong preference for IRD of T3 (Km approximately 20 nM). IRD of [3,5-125I]T3 by native and recombinant tD3 are equally sensitive to inhibition by substrate analogs (T3 > T4 >> rT3) and inhibitors (gold thioglucose >> iodoacetate > propylthiouracil). Northern analysis using a tD3 riboprobe shows high expression of a 1.6-kb messenger RNA in gill and brain, although D3 activity is much higher in brain than in gill. The characterization of tD3 cDNA provides new information about the structure-activity relationship of iodothyronine deiodinases and an important tool to study the regulation of thyroid hormone bioactivity in fish.