The compound 5-(4-methoxyarylimino)-2-N-(3,4-dichlorophenyl)-3-oxo-1,2,4-thiadiazolidine (P(3)-25) is known to possess anti-bacterial, anti-fungal, and anti-tubercular activities. In this report, we provide evidence that P(3)-25 inhibits NF-kappaB, known to induce inflammatory and tumorigenic responses. It activates AP-1, another transcription factor. It inhibits TRAF2-mediated NF-kappaB activation but not TRAF6-mediated NF-kappaB DNA binding by preventing its association with TANK (TRAF for NF-kappaB). It facilitates binding of MEKK1 with TRAF2 and thereby activates JNK and AP-1. We provide evidence, for the first time, that suggests that the interaction of P(3)-25 with TRAF2 leads to inhibition of the NF-kappaB pathway and activation of AP-1 pathway. These results suggest novel approaches to design of P(3)-25 as an anti-cancer/inflammatory drug for therapy through regulation of the TRAF2 pathway.