Elevation of the intracellular calcium concentration is necessary for cell growth and the activation of several lymphokine genes. The immunosuppressive drugs cyclosporin A and FK506 profoundly inhibit the calcium-dependent signaling pathway in T lymphocytes by interfering with the activity of the calcium/calmodulin (CaM)-dependent serine/threonine phosphatase, calcineurin (CN). Little is known, however, about how activation of CN enzyme activity or interaction with its substrate, nuclear factor of activated T cell (NF-AT), is regulated. We show here that the binding of CaM to CN may affect the conformation of CN at both the CaM-binding and the autoinhibitory (AI) domains and that this is critical for activation of CN to dephosphorylate NF-AT. Dissociation of the AI domain from the enzyme active site on CN leads to expose a binding site for NF-AT at the N terminus of CN and allows the CN binding to NF-AT. Since the cytoplasmic form of NF-AT can interact with CN mutants lacking enzyme activity, the interaction of the two molecules is independent of CN enzyme activity and occurs prior to the dephosphorylation of NF-AT. Dephosphorylation converts NF-AT from the cytoplasmic to the nuclear form by exposing the DNA-binding domain on NF-AT, and the nuclear form of NF-AT brings CN together into the nuclei. We therefore propose that the activation of CN by the CaM binding independently regulates the interaction with NF-AT and the dephosphorylation of NF-AT.