Summary Thyroid-stimulating immunoglobulins (TSI) are a functional biomarker of Graves' disease (GD). To develop a novel TSI bioassay, a cell line (MC4-CHO-Luc) was bio-engineered to constitutively express a chimeric TSH receptor (TSHR) and constructed with a cyclic adenosine monophosphate (cAMP)-dependent luciferase reporter gene that enables TSI quantification. Data presented as percentage of specimen-to-reference ratio (SRR%) were obtained from 271 patients with various autoimmune and thyroid diseases and 180 controls. Sensitivity of 96% and specificity of 99% for untreated GD were attained by receiver operating characteristic analysis, area under the curve 0·989, 95% confidence interval 0·969–0·999, P = 0·0001. Precision testing of manufactured reagents of high, medium, low and negative SRR% gave a percentage of coefficient-of-variation of 11·5%, 12·8%, 14·5% and 15·7%, respectively. There was no observed interference by haemoglobin, lipids and bilirubin and no non-specific stimulation by various hormones at and above physiological concentrations. TSI levels from GD patients without (SRR% 406 ± 134, mean ± standard deviation) or under anti-thyroid treatment (173 ± 147) were higher (P < 0·0001) compared with TSI levels of patients with Hashimoto's thyroiditis (51 ± 37), autoimmune diseases without GD (24 ± 10), thyroid nodules (30 ± 26) and controls (35 ± 18). The bioassay showed greater sensitivity when compared with anti-TSHR binding assays. In conclusion, the TSI-Mc4 bioassay measures the functional biomarker accurately in GD with a standardized protocol and could improve substantially the diagnosis of autoimmune diseases involving TSHR autoantibodies.