Systemic cyclosporin A and tacrolimus are effective treatments for psoriasis. Cyclosporin A and tacrolimus block T cell activation by inhibiting the phosphatase calcineurin and preventing translocation from the cytoplasm to the nucleus of the transcription factor nuclear factor of activated T cells (NFAT). Inhibition of T cell activation is thought to account for their therapeutic action in psoriasis. We investigated whether nonimmune cells in human skin express calcineurin and NFAT1 and whether cyclosporin A and tacrolimus block activation of calcineurin/NFAT in epidermal keratinocytes. The expression patterns of the principal components of calcineurin/NFAT signaling pathway in normal human skin and psoriasis were determined by immunohistochemistry. We assessed calcineurin/NFAT activation in cultured keratinocytes by measuring the degree of nuclear localization of calcineurin and NFAT1 using immunofluorescence/confocal microscopy and assessed if cyclosporin A and tacrolimus blocked nuclear translocation of these proteins. A variety of cell types in normal and psoriatic skin expressed calcineurin and NFAT1, but expression was particularly prominent in keratinocytes. The principal cyclosporin A and tacrolimus binding proteins cyclophilin A and FKBP12 were also expressed by keratinocytes and nonimmune cells in skin. NFAT1 was predominantly nuclear in normal basal epidermal keratinocytes. Increased nuclear localization of NFAT1 was observed in suprabasal keratinocytes within lesional and to a lesser extent nonlesional psoriatic epidermis compared to normal skin (p = 0.001 and p = 0.03, respectively), suggesting increased activation of calcineurin in psoriatic epidermal keratinocytes. Agonists that induce keratinocyte differentiation, specifically 12-0-tetradecanoyl-phorbol-13-acetate (TPA) plus ionomycin, TPA, and raised extracellular calcium, induced nuclear translocation of NFAT1 and calcineurin in keratinocytes that was inhibited by pretreatment with cyclosporin A or tacrolimus. In contrast in human dermal fibroblasts, TPA plus ionomycin or TPA did not significantly alter the proportion of nuclear-associated NFAT1. These data provide the first evidence that calcineurin is functionally active in human keratinocytes inducing nuclear translocation of NFAT1 and also indicate that regulation of NFAT1 nuclear translocation in skin is cell type specific. Inhibition of this pathway in epidermal keratinocytes may account, in part, for the therapeutic effect of cyclosporin A and tacrolimus in skin diseases such as psoriasis.