The transcription factor NF-kappa B is a heterodimer consisting of two proteins encoded by different members of the rel gene family (p50 and p65). The p50 subunit is unusual among DNA-binding proteins in that its functional form is encoded in an open reading frame of relative molecular mass 105,000 (p105; ref. 4). The N-terminal region of this open reading frame encodes p50, whereas the remaining C terminus contains ankyrin repeats. Although p50 binds to DNA, full-length p105 translated in vitro does not. The mechanism by which p50 is generated in vivo, and the fate of the C-terminal region of p105 have not been established. Here we show that functional p50 is produced by ATP-dependent proteolysis of p105. Moreover, we find that the C-terminal half of p105 is not required for processing in vivo, and is rapidly degraded on processing. We propose that the C-terminal region of p105 is involved in the cytoplasmic assembly of the complex between the p50/p65 heterodimer and the inhibitor I kappa B.