Activation of transcription factor NF-kappaB involves the signal-dependent degradation of basally phosphorylated inhibitors such as IkappaBalpha and IkappaBbeta. The gene encoding IkappaBalpha is under NF-kappaB control, which provides a negative feedback loop to terminate the induced NF-kappaB response. However, recent studies have identified a hypophosphorylated pool of IkappaBbeta that shields nuclear NF-kappaB from inhibition by newly synthesized IkappaBalpha. In the present work, we provide three lines of evidence indicating that this protection mechanism is regulated by the C-terminal PEST domain of IkappaBbeta. First, disruption of two basal phosphoacceptors present in the IkappaBbeta PEST domain (Ser-313 and Ser-315) yields a mutant that forms ternary complexes with NF-kappaB and its target DNA-binding site. Second, based on in vitro mixing experiments, these ternary complexes are resistant to the inhibitory action of IkappaBalpha. Third, mutants of IkappaBbeta that are defective for phosphorylation at Ser-313 and Ser-315 fail to efficiently block NF-kappaB-directed transcription in vivo, whereas replacement of these two IkappaBbeta residues with a phosphoserine mimetic generates a fully functional repressor. Taken together, our findings suggest that the functional fate of NF-kappaB when bound to IkappaBbeta is critically dependent on the phosphorylation status of the IkappaBbeta PEST domain.