The aryl hydrocarbon receptor (AhR) is a ligand-activated basic-helix-loop-helix transcription factor that binds polyaromatic hydrocarbons (PAH), such as 2,3,7,8-tetrachlorodibenzo-p-dioxin (TCDD), and mediates their toxicity. Binding of PAH to AhR in the cytoplasm triggers a poorly defined transformation step of the receptor into a nuclear transcription factor. In this study, we show that the calcium-dependent cysteine protease calpain plays a major role in the ligand-induced transformation and signaling of AhR. Fluorescence imaging measurements showed that TCDD treatment elevates intracellular calcium, providing the trigger for calpain activation, as measured toward t-butoxycarbonyl-Leu-Met-chloromethylaminocoumarin, a calpain-specific substrate. Inhibition of calpain activity by the N-benzyloxycarbonyl-Val-Phe-aldehyde (MDL28170) blocked the TCDD-induced nuclear translocation of AhR in Hepa1c1c7 mouse hepatoma cell line. Treatment of the human metastatic breast carcinoma cell line MT-2 with MDL28170 and 3-(4-iodophenyl)-2-mercapto-(Z)-2-propenoic acid (PD 150606), two calpain-selective inhibitors, completely abolished the TCDD-induced transactivation of AhR as assessed by transcription of CYP1A1 gene. Previous studies have established that after TCDD-induced transactivation, the AhR undergoes a massive depletion; we show here that selective calpain inhibitors can block this step, which suggests that the ligand-induced down-regulation of the AhR is calpain-dependent. The data presented support a major role for calpain in the AhR transformation, transactivation, and subsequent down-regulation, and provide a possible explanation for many of the reported phenomena of ligand-independent activation of AhR.