Bisphosphate 3'-nucleotidase (BPNT1 in mammals and Met22/Hal2 in yeast) is one of five members of a family of signaling phosphatases united through a common tertiary structure and inhibition by subtherapeutic doses of the antibipolar drug lithium. Here we report a role for 3'-nucleotidase and its substrate, 3'-phosphoadenosine 5'-phosphate (PAP), in mediating the cellular effects of lithium. Lithium-induced inhibition of growth in yeast cells may be overcome by dose-dependent heterologous expression of human BPNT1. Disruption of the yeast 3'-nucleotidase gene or treatment of cells with lithium results in a >80-fold accumulation of PAP and leads to potent growth inhibition. These data indicate that the accumulation of a 3'-nucleotidase substrate, such as PAP, mediates the toxicity of lithium. To further probe this model we examined the growth inhibitory effects of lithium under conditions in which PAP biosynthetic machinery was concomitantly down-regulated. Disruption of met3 or met14 genes (ATP sulfurylase or phosphosulfate kinase), transcriptional down-regulation of MET3 through methionine addition, or administration of chlorate, a widely used cell-permeable sulfurylase inhibitor, function to reduce lithium-induced intracellular PAP accumulation and lithium toxicity; all of these effects were reversed by heterologous expression of human sulfurylase and kinase. Collectively, our data support a role for 3'-nucleotidase activity and PAP metabolism in aspects of lithium's mechanism of action and provide a platform for development of novel pharmacological modulators aimed at improving therapies for the treatment of bipolar disorder.