Accumulating evidence suggests that G protein-coupled receptors (GPCRs) can form dimeric or oligomeric arrays. Based on this concept, we have tested the hypothesis that truncated GPCRs can act as negative regulators of wild-type receptor function. Using the GS-coupled V2 vasopressin receptor as a model system, we systematically analyzed the ability of N- and C-terminal V2 receptor fragments to interfere with the activity of the wild-type V2 receptor coexpressed in COS-7 cells. Several N-terminal V2 receptor truncation mutants were identified that strongly inhibited the function (as determined in cAMP and radioligand binding assays) and cell surface trafficking of the coexpressed full-length V2 receptor. However, these truncation mutants did not interfere with the function of other GS-coupled receptors such as the D1 dopamine and the beta2-adrenergic receptors. Dominant negative effects were only observed with mutant receptors that contained at least three transmembrane domains. In addition, immunoblotting experiments showed that all V2 receptor truncation mutants displaying dominant negative activity (but not those mutant receptors lacking this activity) were able to form heterodimers with the full-length V2 receptor, suggesting that complex formation between mutant and wild-type V2 receptors underlies the observed inhibition of wild-type receptor function. Given the high degree of structural homology shared by all GPCRs, our findings should also be applicable to other members of this receptor superfamily.