Optimal activation of T cells requires at least two signals delivered by the T-cell receptor complex and costimulatory molecules such as CD28. The CD28 signaling participates in the transcription of the interleukin-2 gene through activation of an enhancer termed the CD28-responsive element (CD28RE). Stimulation of CD28 enhances mitogen-mediated induction of CD28RE-binding proteins including members of the NF-kappaB/Rel transcription factor family, although the underlying mechanism remains elusive. In this report, we show that CD28 costimulation leads to biphasic induction of NF-kappaB/Rel heterodimers, including early-phase induction of p50/RelA and c-Rel/RelA and late-phase induction of p50/c-Rel. Interestingly, activation of these NF-kappaB/Rel complexes by the CD28 signal is associated with the rapid degradation of both IkappaBalpha and IkappaBbeta, two major cytoplasmic inhibitors of NF-kappaB/Rel. Although IkappaBalpha degradation can be induced by phorbol ester alone, degradation of IkappaBbeta is largely dependent on the CD28 costimulatory signal. We further demonstrate that CD28-mediated transactivation of the CD28RE enhancer is potently inhibited by an N-terminal truncation mutant of IkappaBbeta that is incapable of responding to the degradation signals. Together, these results suggest that the CD28 costimulatory signal augments activation of NF-kappaB/Rel by promoting degradation of IkappaBbeta as well as enhancing degradation of IkappaBalpha and that induction of NF-kappaB/Rel serves as an essential step in the signal-mediated activation of the CD28RE enhancer.