We have constructed and characterized a flexible system for analyzing the phenomenon of squelching and estrogen receptor function in the yeast Saccharomyces cerevisiae. The A/B region of the human estrogen receptor was replaced with the transcriptional activating domain of VP16 and expressed in yeast cells from high-copy-number plasmids. Addition of hormone resulted in an immediate inhibition of expression (squelching) of a chromosomally integrated GAL1:lacZ reporter gene and the eventual arrest of cell growth (toxicity). In order to determine whether a relationship exists between toxicity and squelching, mutations were made in this chimeric receptor (VEO) and their effects on transcriptional activation, squelching, and toxicity were compared. A direct correlation was found between mutations in VEO that reduced VP16 transactivation ability in yeast cells and those that reduced both squelching and toxicity. Surprisingly, mutations in the DNA binding domain (DBD) of VEO dramatically reduced squelching and completely relieved toxicity, suggesting a role for the DBD in squelching and strengthening the correlation between squelching and toxicity. To demonstrate the utility of this system for carrying out genetic selection, a plasmid-based yeast genomic bank was screened for genes that can relieve the toxicity of VEO by means of an elevated copy number, resulting in the repeated cloning of an allele of the PDR1 (pleiotropic drug resistance) gene. We present evidence that mutations in PDR1 can modulate the intracellular availability of estradiol by the same mechanism that leads to multiple drug resistance in yeast cells. Taken together, our results provide evidence that cell growth arrest occurs when squelching exceeds a certain threshold and that strong squelching requires both a DBD and a transcriptional activating domain. Furthermore, we show that growth arrest can provide a useful phenotype for carrying out the genetic analysis of both squelching and estrogen receptor function in yeast cells.