Under endoplasmic reticulum (ER) stress conditions, XBP1 mRNA is processed by unconventional splicing and translated into a functional transcription factor. ER stress-specific XBP1 splicing is also known to be activated by IRE1. However, many aspects of the molecular mechanism of XBP1 splicing remain to be elucidated. We previously developed an indicator system that enabled detection of XBPI splicing using fluorescent proteins as the reporter signals. Here, we use a modification of this method that employs modified ER stress-indicators and mutant IRE1 in vivo and in vitro to analyze XBPI splicing mechanisms. Our analyses suggest that the 506-579 nt region of the XBPI mRNA is necessary and sufficient for XBP1 splicing, that XBPI splicing can occur in the cytoplasm, and that cleavage and ligation of XBPI mRNA during splicing may occur as a coupled reaction. (c) 2006 Elsevier Inc. All rights reserved.