trkB encodes a receptor tyrosine kinase activated by three neurotrophins--brain-derived neurotrophic factor (BDNF), neurotrophin-3, and neurotrophin-4/5. In vivo, three isoforms of the receptor are generated by differential splicing--gp145trkB or the full-length trkB receptor, and trkB.T1 and trkB.T2, two cytoplasmically truncated receptors that lack kinases, but contain unique C termini. Although the truncated receptors appear to be precisely regulated during nervous system development and regeneration, their role in neurotrophin signaling has not been directly tested. In this paper, we studied the signaling properties and interactions of gp145trkB, trkB.T1, and trkB.T2 by expressing the receptors in a Xenopus oocyte microinjection assay. We found that oocytes expressing gp145trkB, but not trkB.T1 or trkB.T2, were capable of eliciting 45Ca efflux responses (a phospholipase C-gamma-mediated mechanism) after stimulation by BDNF. When trkB.T1 and trkB.T2 were coexpressed with gp145trkB, they acted as dominant negative receptors, inhibiting the BDNF signal by forming nonfunctional heterodimers with the full-length receptors. An ATP-binding mutant of gp145trkB had similar dominant inhibitory effects. Our data suggest that naturally occurring truncated trkB receptors function as inhibitory modulators of neurotrophin responsiveness. Furthermore, the homodimerization of gp145trkB appears to be an essential step in activation of the BDNF signaling cascade.