Considerable progress has been made in identifying the transcription factors involved in the early specification of the B-lymphocyte lineage. However, little is known about factors that control the transition of mature activated B cells to antibody-secreting plasma cells. Here we report that the transcription factor XBP-1 is required for the generation of plasma cells. XBP-1 transcripts were rapidly upregulated in vitro by stimuli that induce plasma-cell differentiation, and were found at high levels in plasma cells from rheumatoid synovium. When introduced into B-lineage cells, XBP-1 initiated plasma-cell differentiation. Mouse lymphoid chimaeras deficient in XBP-1 possessed normal numbers of activated B lymphocytes that proliferated, secreted cytokines and formed normal germinal centres. However, they secreted very little immunoglobulin of any isotype and failed to control infection with the B-cell-dependent polyoma virus, because plasma cells were markedly absent. XBP-1 is the only transcription factor known to be selectively and specifically required for the terminal differentiation of B lymphocytes to plasma cells.