Endothermy is significant in vertebrate evolution because it changes the relations between animals and their environment. How endothermy has evolved in archosaurs (birds, crocodiles and dinosaurs) is controversial especially because birds do not possess brown adipose tissue, the specialized endothermic tissue of mammals. Internal heat production is facilitated by increased oxidative metabolic capacity, accompanied by the uncoupling of aerobic metabolism from energy (ATP) production. Here we show that the transition from an ectothermic to an endothermic metabolic state in developing chicken embryos occurs by the interaction between increased basal ATP demand (Na(+)/K(+)-ATPase activity and gene expression), increased oxidative capacity and increased uncoupling of mitochondria; this process is controlled by thyroid hormone via its effect on PGC1alpha and adenine nucleotide translocase (ANT) gene expression. Mitochondria become more uncoupled during development, but unlike in mammals, avian uncoupling protein (avUCP) does not uncouple electron transport from oxidative phosphorylation and therefore plays no role in heat production. Instead, ANT is the principal uncoupling protein in birds. The relationship between oxidative capacity and uncoupling indicates that there is a continuum of phenotypes that fall between the extremes of selection for increased heat production and increased aerobic activity, whereas increased cellular ATP demand is a prerequisite for increased oxidative capacity.