Human T-cell leukemia virus type 1 (HTLV-1) Tax targets I-kappaB alpha and I-kappaB beta for phosphorylation, ubiquitination, and proteasome-mediated degradation, causing the nuclear translocation of NF-kappaB/Rel proteins and transcription induction of many cellular genes. The mechanism by which a nuclear protein such as Tax stimulates I-kappaB phosphorylation and degradation remains unclear. Here, we describe two cytoplasmic mutants of Tax, designated TaxDeltaN81 and TaxDeltaN109, from which the domains important for cyclic AMP response element binding factor (CREB) and serum response factor (SRF) binding and nuclear transport have been removed. These mutants were unable to trans activate from the HTLV-1 21-bp repeats or the serum response element in the c-fos promoter. In contrast, they activated NF-kappaB reporters, suggesting that activation of NF-kappaB by Tax occurs in the cytoplasm. Incorporation of the nuclear localization signal (NLS) of the simian virus 40 large T antigen into TaxDeltaN81 and TaxDeltaN109 redirected both proteins predominantly to the nucleus yet did not restore trans activation via CREB or SRF. The NLS fusion had little effect on TaxDeltaN81 but reduced NF-kappaB trans activation by TaxDeltaN109, possibly because of its proximity to the NF-kappaB-activating domain of Tax. In contrast to wild-type Tax, the cytoplasmic TaxDeltaN mutants are not cytotoxic. Stable expression of TaxDeltaN109 in HeLa cells resulted in a significant reduction in the intracellular level of I-kappaB alpha, with the constitutive presence of NF-kappaB in the nucleus and concomitant activation of the NF-kappaB enhancer. These results are suggestive of a potential application of the TaxDeltaN109-like mutants in targeting I-kappaB degradation and NF-kappaB activation. Interestingly, a Tax species with a molecular mass similar to that of TaxDeltaN109 was identified in many HTLV-1-transformed T cells, suggesting that TaxDeltaN109-like species might play a role in HTLV-1-induced leukemogenesis.