The double-stranded (ds) RNA binding proteins, TRBP and PACT bind the interferon-induced protein kinase PKR and dsRNA. TRBP inhibits, whereas PACT activates PKR. They have two dsRNA binding domains (dsRBDs) and a C-terminal domain that does not bind RNA. All three domains show a strong homology between the two proteins. Interaction assays by in vitro binding, yeast two-hybrid, and immunoprecipitations show that TRBP and PACT form heterodimers in the absence of dsRNA. In cells, TRBP and PACT colocalize in specific dots of the perinuclear space. Analysis of the individual domains shows that the two dsRBDs of each protein interact with each other. In contrast, the C-terminal domain of PACT homodimerizes and interacts with its homologous region in TRBP, but the same domain in TRBP does not homodimerize. Because the C-terminal domain in TRBP binds to the tumor suppressor Merlin, the RNase III Dicer and PACT, we name it the Merlin Dicer PACT liaison (Medipal) domain. Based on known interactions Medipal is defined as aminoacids 228-366 in TRBP and 195-313 in PACT. TRBP-PACT interaction correlates with an absence of eIF2alpha activation by PACT, suggesting that the heterodimer does not activate PKR. We propose that the Medipal domain mediates specialized functions through protein-protein interactions and contributes to the RNA interference pathway and to PKR activation.