BCL3 is a candidate proto-oncogene involved in the recurring translocation t(14;19) found in some patients with chronic lymphocytic leukemia. BCL3 protein acts as an I kappa B in that it can specifically inhibit the DNA binding of NF-kappa B factors. Here, we demonstrate that BCL3 is predominantly a nuclear protein and provide evidence that its N terminus is necessary to direct the protein into the nucleus. In contrast to I kappa B alpha (MAD3), BCL3 does not cause NF-kappa B p50 to be retained in the cytoplasm; instead, in cotransfection assays, it alters the subnuclear localization of p50. The two proteins colocalize, suggesting that they interact in vivo. Further immunofluorescence experiments showed that a mutant p50, lacking a nuclear localization signal and restricted to the cytoplasm, is brought into the nucleus in the presence of BCL3. Correspondingly, a wild-type p50 directs into the nucleus a truncated BCL3, which, when transfected alone, is found in the cytoplasm. We tested whether BCL3 could overcome the cytoplasmic retention of p50 by I kappa B alpha. Results from triple cotransfection experiments with BCL3, I kappa B alpha, and p50 implied that BCL3 can successfully compete with I kappa B alpha and bring p50 into the nucleus; thus, localization of NF-kappa B factors may be affected by differential expression of I kappa B proteins. These novel properties of BCL3 protein further establish BCL3 as a distinctive member of the I kappa B family.