Dorsoventral axis formation in the Drosophila embryo is established by a signal transduction pathway that comprises the products of at least 12 maternal genes. Two of these genes, dorsal and cactus, show homology to the mammalian transcription factor NF-kappa B and its inhibitor I kappa B, respectively. As in the case for I kappa B and NF-kappa B, Cactus inhibits Dorsal by retaining it in the cytoplasm. In response to the signal produced and transmitted by the products of the other genes, Dorsal translocates to the nucleus preferentially on the ventral side of the embryo. Here, we show that Cactus forms a cytoplasmic concentration gradient inversely correlated to the nuclear translocation gradient of Dorsal. Deletions of the N-terminus and C-terminus of Cactus reveal that two modes of degradation control cactus activity: signal-induced degradation and signal-independent degradation, respectively. Genetic evidence indicates that degradation of Cactus is required, but not sufficient to translocates Dorsal completely into the nucleus.