The accumulation of unfolded proteins in the endoplasmic reticulum (ER) triggers a stress response program that protects cells early in the response and can lead to apoptosis during prolonged stress. The basic leucine zipper transcription factor, CCAAT/enhancer-binding protein beta (C/EBPbeta), is one of the genes with increased expression during ER stress. Translation of the C/EBPbeta mRNA from different initiation codons leads to the synthesis of two transcriptional activators (LAP-1 and -2) and a transcriptional repressor (LIP). The LIP/LAP ratio is a critical factor in C/EBPbeta-mediated gene transcription. It is shown here that the LIP/LAP ratio decreased by 5-fold during the early phase of ER stress and increased by 20-fold during the late phase, mostly because of changes in LIP levels. The early decrease in LIP required degradation via the proteasome pathway and phosphorylation of the translation initiation factor, eIF2alpha. The increased LIP levels during the late phase were due to increased synthesis and increased stability of the protein. It is proposed that regulation of synthesis and degradation rates during ER stress controls the LIP/LAP ratio. The importance of C/EBPbeta in the ER-stress response program was demonstrated using C/EBPbeta-deficient mouse embryonic fibroblasts. It is shown that C/EBPbeta attenuates expression of pro-survival ATF4 target genes in late ER stress and enhances expression of cell death-associated genes downstream of CHOP. The inhibitory effect of LIP on ATF4-induced transcription was demonstrated for the cat-1 amino acid transporter gene. We conclude that regulation of LIP/LAP ratios during ER stress is a novel mechanism for modulating the cellular stress response.