Nuclear receptor-mediated gene expression is regulated by corepressors and coactivators. In this study we demonstrate that prohibitin (PHB), a potential tumor suppressor, functions as a potent transcriptional corepressor for estrogen receptor alpha (ER). Overexpression of PHB inhibits ER transcriptional activity while depletion of endogenous PHB increases the expression of ER target genes in MCF-7 breast cancer cells. Chromatin immunoprecipitation experiments demonstrate that PHB is associated with the estrogen-regulated pS2 promoter in the absence of hormone and dissociates after estradiol treatment. We demonstrate that PHB interacts with the repressor of estrogen receptor activity (REA), a protein related to PHB, to form heteromers and enhance the protein stability of both corepressors. Interestingly, the corepressor activity of PHB is cross-squelched by the co-expression of REA (and vice versa), suggesting that PHB and REA repress transcription only when they are not paired. We further demonstrate that coiled-coil domains located in the middle of PHB and REA are responsible for their heteromerization, stabilization, and cross-squelching actions. Finally ablation of PHB function in the mouse results in early embryonic lethality whereas mice heterozygous for the PHB null allele exhibit a hyperproliferative mammary gland phenotype. Our results indicate that PHB functions as a transcriptional corepressor for ER in vitro and in vivo, and that its heteromerization with REA acts as a novel mechanism to limit its corepressor activity.