The sensitivity of simulated interannual variability to thermocline impacts on sea surface temperature (SST) is examined in a hybrid coupled model (HCM) of the tropical Pacific climate system, consisting of the latest version of the GFDL/NOAA Modular Ocean Model (MOM 3) and the atmospheric component of the Cane-Zebiak (CZ) coupled model. Standard coupling of the two components has difficulty producing El Ni¿o-like oscillations, apparently due in part to the ocean general circulation model's (OGCM) problems in the far eastern equatorial Pacific, where the modeled subsurface influence on the SST is very weak. Analogous to the CZ model, a separate diagnostic SST anomaly model is explicitly embedded into the z-coordinate OGCM, serving as an interface between the ocean and atmosphere in the HCM. The three components exchange anomaly information only. This embedding strategy has a significant effect on the coupled variability in the model system. Incorporating the embedded SST anomaly equation, in which the thermocline effect on SST is enhanced in the eastern equatorial Pacific, the HCM simulations exhibit oscillations on interannual time scales for a range of parameters. It is shown that the most realistic coupled behavior (e.g., 3--4 year oscillation) results from the appropriate depiction of entrainment temperature (Te) in association with the thermocline depth anomalies. The results support the hypothesis that current mixing parameterization in the OGCM is problematic in depicting vertical turbulent processes.