Evidence is presented that the calcium-activated protease, calpain, is required for differentiation of 3T3-L1 preadipocytes into adipocytes induced by methylisobutylxanthine (a cAMP phosphodiesterase inhibitor), dexamethasone, and insulin. Calpain is expressed by preadipocytes and its level falls during differentiation. Exposure of preadipocytes to the calpain inhibitor N-acetyl-Leu-Leu-norleucinal or overexpression of calpastatin, a specific endogenous inhibitor of calpain, blocks expression of adipocyte-specific genes, notably the CCAAT/enhancer-binding protein (C/EBP)alpha gene, and acquisition of the adipocyte phenotype. The inhibitor disrupts the differentiation-inducing effect of methylisobutylxanthine (by means of the cAMP-signaling pathway), but is without effect on differentiation induced by dexamethasone or insulin. N-acetyl-Leu-Leu-norleucinal, or overexpression of calpastatin, inhibits reporter gene expression mediated by the C/EBPalpha gene promoter by preventing C/EBPbeta, a transcriptional activator of the C/EBPalpha gene, from binding to the promoter. These findings implicate calpain in the transcriptional activation of the C/EBPalpha gene, a process required for terminal adipocyte differentiation.