In cells that do not express immunoglobulin kappa light chain genes, the kappa enhancer binding protein NF-κB is found in cytosolic fractions and exhibits DNA binding activity only in the presence of a dissociating agent such as sodium deoxycholate. The dependence on deoxycholate is shown to result from association of NF-κB with a 60- to 70-kilodalton inhibitory protein (IκB). The fractionated inhibitor can inactivate NF-κB from various sources—including the nuclei of phorbol ester-treated cells—in a specific, saturable, and reversible manner. The cytoplasmic localization of the complex of NF-κB and IκB was supported by enucleation experiments. An active phorbol ester must therefore, presumably by activation of protein kinase C, cause dissociation of a cytoplasmic complex of NF-κB and IκB by modifying IκB. This releases active NF-κB which can translocate into the nucleus to activate target enhancers. The data show the existence of a phorbol ester-responsive regulatory protein that acts by controlling the DNA binding activity and subcellular localization of a transcription factor.