The nuclear factor κB (NF-κB) controls diverse cellular processes and is frequently misregulated in chronic immune diseases or cancer. The activity of NF-κB is regulated by inhibitory κB (IκB) proteins which control nuclear-cytoplasmic shuttling and DNA binding of NF-κB. Here, we describe a novel role of p65 as a critical regulator of the cellular localization and functions of NF-kB and its inhibitor IκBβ. In genetically modified p65-/- cells, the localization of ectopic p65 is not solely regulated by IκBα, but is largely dependent on the nuclear localization signal (NLS) and the nuclear export signal (NES) of p65. Furthermore, unlike IκBα, IκBβ does not contribute to nuclear export of p65. In fact, the cellular localization and degradation of IκBβ is controlled by the p65 specific NLS and NES. Our data also reveal that, in addition to stimulus-induced redistribution of NF-κB, changes in the constitutive localization of p65 and IκBβ specifically modulate activation of inflammatory genes. This is a consequence of differences in the DNA binding activity and signal responsiveness between the nuclear and cytoplasmic NF-κB/IκBβ complexes. Together, our findings indicate that the p65 subunit controls transcriptional competence of NF-κB by regulating the NF-κB/IκBβ pathway.