B cell lymphoma 3 (Bcl3), a member of the IκB family proteins, modulates transcription by primarily associating with NF-κB p50 and p52 homodimers. Bcl3 undergoes extensive phosphorylation, though the functions of many of these modifications remain unclear. We previously described that phosphorylation at Ser33, Ser114 and Ser446 partially switches Bcl3 from acting as an IκB-like inhibitor to a transcription regulator by associating with the (p52:p52):DNA binary complex. Here, we identified another critical phosphorylation site, Ser366. Substituting at all four residues to phospho-mimetic glutamate further enhances Bcl3's transcriptional activity. Phospho-modifications retain Bcl3's ability to stably bind p52 but induces reciprocal structural changes as revealed by HDX-MS experiments; the N-terminal region stiffens, while the C-terminus becomes more flexible. The increased flexibility allowed the Bcl3:(p52p52) binary complex to better accommodate DNA. The removal of the C-terminal 28-residues transformed Bcl3 into a transcriptional activator independent of phosphorylation. Notably, most identified mutations in Bcl3 from various cancers map to its C-terminus, suggesting the functional relevance of Bcl3 C-terminal structural flexibility and enhanced interaction with (p52p52):DNA complex to transcriptional potential and disease. Overall, this study uncovers the mechanistic basis by which phosphorylation-driven structural changes convert Bcl3 from an inhibitor to a transcriptional cofactor of NF-κB, and how deregulation of its activity through altered phosphorylation or mutation can lead to cancer.