Ruminant methane yield (MY) is positively correlated with mean retention time (MRT) of digesta. The hormone triiodothyronine (T3 ), which is negatively correlated with ambient temperature, is known to influence MRT. It was hypothesised that exposing sheep to low ambient temperatures would increase plasma T3 concentration and decrease MRT of digesta within the rumen of sheep, resulting in a reduction of MY. To test this hypothesis, six Merino sheep were exposed to two different ambient temperatures (cold treatment, 9 ± 1 °C; warm control 26 ± 1 °C). The effects on MY, digesta MRT, plasma T3 concentration, CO2 production, DM intake, DM digestibility, change in body weight (BW), rumen volatile fatty acid (VFA) concentrations, estimated microbial protein output, protozoa abundance, wool growth, water intake, urine output and rectal temperature were studied. Cold treatment resulted in a reduction in MY (p < 0.01); digesta MRT in rumen (p < 0.01), hindgut (p = 0.01) and total digestive tract (p < 0.01); protozoa abundance (p < 0.05); and water intake (p < 0.001). Exposure to cold temperature increased plasma T3 concentration (p < 0.05), CO2 production (p = 0.01), total VFA concentrations (p = 0.03) and estimated microbial output from the rumen (p = 0.03). The rate of wool growth increased (p < 0.01) due to cold treatment, but DM intake, DM digestibility and BW change were not affected. The results suggest that exposure of sheep to cold ambient temperatures reduces digesta retention time in the gastrointestinal tract, leading to a reduction in enteric methane yield. Further research is warranted to determine whether T3 could be used as an indirect selection tool for genetic selection of low enteric methane-producing ruminants.