Transponder keys may also be called "chip keys". Transponder keys are automotive ignition keys with signal-emitting circuits built inside. When the key is turned in the ignition cylinder, the car's computer transmits a radio signal to the transponder circuit. If the circuit does not respond or if the code is incorrect, the engine will not start.

The circuit has no battery; it is energized by the radio signal itself. The circuit typically has a computer chip that is programmed to respond by sending a coded signal back to the car's computer.

Chip Keys successfully protect cars from theft in two ways: forcing the ignition cylinder won't start the car, and the keys are difficult to duplicate. This is why chip keys are popular in modern cars and help decrease car theft.

Many people who have transponder keys, such as those which are part of Ford Motor Company's SecuriLock system, are not aware of the fact because the circuit is hidden inside the plastic head of the key. On the other hand, General Motors produced what are known as VATS keys (Vehicle Anti-Theft System) during the 1990s, which are often erroneously believed to be transponders but actually use a simple resistor, which is visible in the blade of the key.