Phosphorylation of the transcription factor NFATp inhibits its DNA binding activity in cyclosporin A-treated human B and T cells. Cyclosporin A (CsA) exerts its immunosuppressive effect by inhibiting the activity of nuclear factor of activated T cells (NFAT), thus preventing transcriptional induction of several cytokine genes. This effect is thought to be largely mediated through inactivation of the phosphatase calcineurin, which in turn inhibits translocation of an NFAT component to the nucleus. Here we report that CsA treatment of Raji B and Jurkat T cell lines yields a phosphorylated form of NFATp that is inhibited in DNA-binding and in its ability to form an NFAT complex with Fos and Jun. Immunoblot analyses and metabolic labeling with [32P]orthophosphate show that CsA alters NFATp migration on SDS-polyacrylamide gel electrophoresis by increasing its phosphorylation level without affecting subcellular distribution. Dephosphorylation by in vitro treatment with calcineurin or alkaline phosphatase restores NFATp DNA binding activity and its ability to reconstitute an NFAT complex with Fos and Jun proteins. These data point to a new mechanism for CsA-sensitive regulation of NFATp in which dephosphorylation is critical for DNA binding.