N = (1, 0) supergravity in six dimensions admits AdS3 S3 as a vacuum solution. We extend our recent results presented in L et al (2002 Preprint hep-th/0212323), by obtaining the complete N = 4 Yang-Mills-Chern-Simons supergravity in D = 3, up to quartic fermion terms, by S3 group manifold reduction of the six-dimensional theory. The SU(2) gauge fields have Yang-Mills kinetic terms as well as topological Chern-Simons mass terms. There is in addition a triplet of matter vectors. After diagonalization, these fields describe two triplets of topologically-massive vector fields of opposite helicities. The model also contains six scalars, described by a GL(3, R)/SO(3) sigma model. It provides the first example of a three-dimensional gauged supergravity that can be obtained by a consistent reduction of string theory or M-theory and that admits AdS3 as a vacuum solution. There are unusual features in the reduction from six-dimensional supergravity, owing to the selfduality condition on the 3-form field. The structure of the full equations of motion in N = (1, 0) supergravity in D = 6 is also elucidated, and the role of the self-dual field strength as torsion is exhibited.