The transcription factor NF-kappaB is retained in the cytoplasm by its interaction with the inhibitory subunit known as IkappaB. Signal-induced serine phosphorylation and subsequent ubiquitination of IkappaBalpha target it for degradation by the 26 S proteasome. Recently, pervanadate, a protein-tyrosine phosphatase inhibitor, was shown to block the degradation of IkappaBalpha, thus inhibiting NF-kappaB activation. We investigated the mechanism by which pervanadate inhibits the degradation of IkappaBalpha. Western blot analysis of IkappaBalpha from tumor necrosis factor-treated cells revealed a slower migrating IkappaBalpha species that was subsequently degraded. However, pervanadate-treated cells also revealed a slower migrating species of IkappaBalpha that appeared in a time- and dose-dependent manner and was not degraded by tumor necrosis factor. The slower migrating species of IkappaBalpha from pervanadate-treated cells was tyrosine-phosphorylated as revealed by cross-reactivity with anti-phosphotyrosine antibodies, by the ability of the specific tyrosine phosphatase PTP1B to dephosphorylate it, and by phosphoamino acid analysis of IkappaBalpha immunoprecipitated from 32P-labeled cells. By site-specific mutagenesis and deletion analysis, we identified Tyr-42 on IkappaBalpha as the phosphoacceptor site. Furthermore, in an in vitro reconstitution system, tyrosine-phosphorylated IkappaBalpha was protected from degradation. Our results demonstrate that inducible phosphorylation and degradation of IkappaBalpha are negatively regulated by phosphorylation at Tyr-42, thus preventing NF-kappaB activation.