X‐box binding protein‐1 (XBP‐1) is a transcription factor essential for plasma cell differentiation. XBP‐1 transcripts are found at high levels in plasma cells from rheumatoid synovium and myeloma cell lines. Lymphoid chimeras deficient in XBP‐1 have a profound defect in plasma cell differentiation, with few plasma cells in their periphery and severely reduced serum immunoglobulin levels. When introduced into B‐lineage cells, XBP‐1 initiates plasma cell differentiation. XBP‐1 is also the mammalian homologue of the yeast transcription factor Hac1p, an important component of the unfolded protein response (UPR). The UPR allows cells to tolerate conditions of endoplasmic reticulum (ER) stress caused by misfolded proteins. Studies examining the relationship between plasma cell differentiation, XBP‐1, and the UPR demonstrate that this novel signaling system is vital for plasma cell differentiation. Signals that induce plasma cell differentiation and the UPR cooperate via XBP‐1 to induce terminal B‐cell differentiation. Additionally, XBP‐1 plays an important role in the regulation of interleukin‐6 production, a cytokine essential for plasma cell survival.