The signal transduction pathway through which interferon-alpha (IFN alpha) stimulates transcription of a defined set of genes involves activation of DNA-binding factors specific for the IFN alpha-stimulated response element (ISRE). IFN-stimulated gene factor-3 (ISGF3), the positive regulator of transcription, was derived in response to IFN alpha treatment from preexisting protein components that were activated first in the cell cytoplasm prior to appearance in the nucleus. Nuclear translocation of ISGF3 required several minutes and could be inhibited by NaF. Formation of active ISGF3 was mimicked in vitro by mixing cytoplasmic extracts from IFN alpha-stimulated cells with extracts of cells treated to contain high amounts of the unactivated factor. Active ISGF3 was found to be formed from association of two latent polypeptide precursors that were distinguished biochemically by differential sensitivity to N-ethyl maleimide. One precursor was modified in response to IFN alpha occupation of its cell-surface receptor, thus enabling association with the second subunit. The resulting complex then was competent for nuclear translocation and binding to ISRE. Cytoplasmically localized transcription factor precursors thus serve as second messengers to translate directly an extracellular signal into specific transcriptional activity in the nucleus.