In cells that do not express immunoglobulin kappa light chain genes, the kappa enhancer binding protein NF-kappa B 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-kappa B with a 60- to 70-kilodalton inhibitory protein (I kappa B). The fractionated inhibitor can inactivate NF-kappa B 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-kappa B and I kappa B 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-kappa B and I kappa B by modifying I kappa B. this releases active NF-kappa B 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.