Bcl-3 is an I kappa B-related protein with ankyrin repeat motifs. Its gene is located at a site of recurrent translocations in a subset of B cell chronic lymphocytic leukemias. Bcl-3 associates tightly with p50B (NFKB2, p52) homodimers in cells, and together these proteins form a ternary complex with DNA at kappa B sites. Such an association functionally leads to a novel and potent form of transactivation through the kappa B motif: the tethering of Bcl-3 to DNA via the p50B homodimers allows Bcl-3 to transactivate directly, while p50B homodimers alone cannot. Transactivation mediated by Bcl-3 requires two cooperating domains located amino- and carboxy-terminal to the ankyrin domain. Bcl-3 is localized to the nucleus, and a Bcl-3-p50B complex is detected in certain lymphoid cells. Our data reveal a novel role for Bcl-3, distinct from that of the inhibitor I kappa B. The results have implications for tumorigenesis.