The transcription factor NFAT5/TonEBP is evolutionarily the oldest member of the NFAT/Rel family of transcription factors. We show that NFAT5 is uniquely related to NF-kappaB and is the only member of the Rel/NFAT family to be activated by osmotic stress. Like Rel/NF-kappaB proteins but unlike the calcium-regulated NFAT proteins, NFAT5 is constitutively dimeric, and dimerization is essential for DNA binding and transcriptional activity. Using dominant-negative proteins that inhibit NFAT5 dimerization, we show that NFAT5 regulates expression of the TNFalpha and lymphotoxin-beta genes in osmotically stressed T cells. Chromatin immunoprecipitation experiments confirm that NFAT5 binds to the TNFalpha promoter in vivo. We suggest that NFAT5 participates in specific aspects of host defense by upregulating TNF family genes and other target genes in T cells.