Cyclosporine A is an immunosuppressive agent that is used clinically in the prevention of transplant rejection and development of graft-versus-host disease. Recently, cyclosporine A has been shown to possess anti-inflammatory properties and is capable of inhibiting lipopolysaccharide-induced NF-kappaB activation. Ubiquitin-mediated proteasomal proteolysis plays a critical role in signal-induced NF-kappaB activation since it regulates both IkappaB degradation and p105 processing, it is also involved in the production of peptides for the assembly of MHC class I molecules. We report here that cylcosporine A acts as an uncompetitive inhibitor of the chymotrypsin-like activity of the 20S proteasome in vitro and that it suppresses lipopolysaccharide-induced IkappaB degradation and p105 processing in vivo demonstrating that inhibition of proteasome proteolysis is the mechanism by which cyclosporine A prevents NF-kappaB activation. A structurally unrelated immunosuppressant, rapamycin, did not inhibit the 20S proteasome in vitro.