A truncated isoform of C/EBPbeta, C/EBPbeta-LIP, is required for liver proliferation. This isoform is expressed at high levels in proliferating liver and in liver tumors. However, high levels of C/EBPbeta-LIP are also observed in non-proliferating livers during acute phase response (APR). In this paper we present mechanisms by which liver regulates activities of C/EBPbeta-LIP. We found that calmodulin (CaM) inhibits the ability of C/EBPbeta-LIP to promote liver proliferation during APR through direct interactions. This activity of CaM is under negative control of Ca(2+), which is reduced in nuclei of livers with APR, whereas it is increased in nuclei of proliferating livers. A mutant CaM, which does not interact with C/EBPbeta-LIP, also fails to inhibit the growth promotion activity of C/EBPbeta-LIP. Down-regulation of CaM in livers of LPS-treated mice causes liver proliferation via activation of C/EBPbeta-LIP. Overexpression of C/EBPbeta-LIP above levels of CaM also initiates liver proliferation in LPS-treated mice. In addition, CaM regulates transcriptional activity of another isoform of C/EBPbeta, C/EBPbeta-LAP, and might control liver biology through the regulation of both isoforms of C/EBPbeta. In searching for molecular mechanisms by which C/EBPbeta-LIP promotes cell proliferation, we found that C/EBPbeta-LIP releases E2F.Rb-dependent repression of cell cycle genes by a disruption of E2F1.Rb complexes and by a direct interaction with E2F-dependent promoters. CaM inhibits these growth promotion activities of C/EBPbeta-LIP and, therefore, supports liver quiescence. Thus, our findings discover a new pathway of the regulation of liver proliferation that involves calcium-CaM signaling.