The NF-kappaB-like transcription factor Relish plays a central role in the innate immune response of Drosophila. Unlike other NF-kappaB proteins, Relish is activated by endoproteolytic cleavage to generate a DNA-binding Rel homology domain and a stable IkappaB-like fragment. This signal-induced endoproteolysis requires the activity of several gene products, including the IkappaB kinase complex and the caspase Dredd. Here we used mutational analysis and protein microsequencing to demonstrate that a caspase target site, located in the linker region between the Rel and the IkappaB-like domain, is the site of signal-dependent cleavage. We also show physical interaction between Relish and Dredd, suggesting that Dredd indeed is the Relish endoprotease. In addition to the caspase target site, the C-terminal 107 aa of Relish are required for endoproteolysis and signal-dependent phosphorylation by the Drosophila IkappaB kinase beta. Finally, an N-terminal serine-rich region in Relish and the PEST domain were found to negatively regulate Relish activation.