Expression of the bcl-3 gene is demonstrated to be elevated in some B-cell chronic lymphocytic leukemias with a chromosomal translocation, t(14;19)(q32;q13.1). Bcl-3 protein has seven tandem ankyrin repeats that are also found in I kappa B proteins, inhibitors of Rel/NF kappa B transcription factors. In this paper, we demonstrate that Bcl-3 is a member of I kappa B family of proteins with a novel specificity. Bcl-3 preferentially associates with the p50 of NF kappa B, and the nuclear localization signal of p50 is required for this association. Bcl-3 inhibits the DNA-binding activity of p50 homodimers but not that of p50-p65 heterodimers. Transient transfection experiments revealed that appropriate expression of Bcl-3 results in inhibition of the function of p50 homodimers but not that of p50-p65 heterodimers, whereas pp40 and I kappa B gamma inhibit the function of both p50 homodimers and p50-p65 heterodimers. These studies suggest that Bcl-3 could modulate the transcription in a way different from pp40 and I kappa B gamma.