The tumor necrosis factor alpha (TNF-alpha) gene is rapidly transcribed in activated T cells via a calcium-dependent pathway that does not require de novo protein synthesis, but is completely blocked by the immunosuppressive drugs cyclosporin A (CsA) and FK506. Here we show that calcineurin phosphatase activity is both necessary and sufficient for TNF-alpha gene transcription in T cells, and identify the factor that binds to the kappa 3 element of the TNF-alpha gene promoter as the target for calcineurin action. The ability of analogues of CsA and FK506 to block calcineurin phosphatase activity correlates completely with their ability to inhibit induction of TNF-alpha mRNA, induction of a TNF-alpha promoter reporter plasmid in transiently transfected T cells, and induction of the kappa 3 binding factor in an electrophoretic mobility shift assay. Moreover, a cDNA encoding the constitutively active form of calcineurin is sufficient to activate the TNF-alpha promoter and the kappa 3 element. TNF-alpha gene transcription is also highly inducible, CsA-sensitive, and protein synthesis-independent in B cells stimulated through their surface immunoglobulin receptors. Using the panel of CsA and FK506 analogues, we show that calcineurin participates in the induction of TNF-alpha transcription in activated B cells. These results extend our previous demonstration that the kappa 3 binding factor is related to NFATp, the preexisting subunit of nuclear factor of activated T cells, and suggest that calcineurin-mediated modification of the kappa 3 binding factor in T cells is of key importance in the induction of TNF-alpha transcription.