NFAT1 (previously termed NFATp) is a cytoplasmic transcription factor involved in the induction of cytokine genes. We have previously shown that the dephosphorylation of NFAT1, accompanied by its nuclear translocation and increased DNA binding activity, is regulated by calcium- and calcineurin-dependent mechanisms, as each of these hallmarks of NFAT1 activation is elicited by ionomycin and blocked by the immunosuppressive drugs cyclosporin A and FK506 (Shaw, K.T.-Y., Ho, A.M., Raghavan, A., Kim, J., Jain, J., Park, J., Sharma, S., Rao, A., and Hogan, P.G. (1995) Proc. Natl. Acad. Sci. U.S.A. 92, 11205-11209). Here we show that the activation state of NFAT1 in T cells is remarkably sensitive to the level of calcineurin activity. Addition of cyclosporin A, even in the presence of ongoing ionomycin stimulation, results in rephosphorylation of NFAT1, its reappearance in the cytoplasm, and a return of its DNA binding activity to low levels. Similar effects are observed upon removal of ionomycin or addition of EGTA. We also demonstrate a direct interaction between calcineurin and NFAT1 that is consistent with a direct enzyme-substrate relation between these two proteins and that may underlie the sensitivity of NFAT1 activation to the level of calcineurin activity. The NFAT1-calcineurin interaction, which involves an N-terminal region of NFAT1 conserved in other NFAT family proteins, may provide a target for the design of novel immunosuppressive drugs.