Bcl-3 is a member of the family of IkappaB inhibitors. Unlike the classical, cytoplasmic IkappaBs, Bcl-3 does not inhibit RelA- or c-Rel-containing NF-kappaB transcription factor dimers. Instead, Bcl-3 can enter the nucleus and modulate NF-kappaB activity, although the underlying mechanism and physiologic function remain largely unknown. Here we identified Bcl-3 as a regulator of immunologic tolerance to self. In parallel with NF-kappaB2, Bcl-3 functions within stroma to generate medullary thymic epithelial cells, which are essential for negative selection of autoreactive T cells. Loss of both NF-kappaB2 and Bcl-3, but not either one alone, led to a profound breakdown in central tolerance resulting in rapid and fatal multiorgan inflammation. These data reveal extensive utilization of the NF-kappaB system to promote central tolerance in the thymus, in apparent contrast with the well-known roles of NF-kappaB to promote inflammation and autoimmunity in the periphery.