NFAT DNA binding complexes regulate programs of cellular activation and differentiation by translating receptor-dependent signaling events into specific transcriptional responses. NFAT proteins, originally defined as calcium/calcineurin-dependent regulators of cytokine gene transcription in T lymphocytes, are expressed in many different cell types and represent critical signaling intermediates that mediate an increasingly wide spectrum of biologic responses. Recent studies have identified a novel protein containing a region of similarity to the NFAT DNA binding domain. Here we demonstrate that this protein, designated NFATL1 (also known as tonicity enhancer binding protein and NFAT5) is expressed at high levels in the thymus but is undetectable in mature lymphocytes. However, NFATL1 can be induced in both primary quiescent T lymphocytes and differentiated Th1 and Th2 cell populations upon mitogen- or Ag receptor-dependent activation. The induction of NFATL1 protein, as well as NFATL1-dependent transcription, is inhibited by cyclosporin A and FK506, and expression of constitutively active calcineurin induces NFATL1-dependent transcription. Overexpression of NFATc1 and inhibition of NFATc activity through the use of a dominant negative NFATc1 protein have no affect on NFATL1-dependent transcription, indicating that NFATc proteins do not play a role in the calcineurin-dependent induction of NFATL1. Interestingly, induction of NFATL1 by a hyperosmotic stimulus is not blocked by the inhibition of calcineurin. Moreover, osmotic stress response genes such as aldose reductase are not induced upon T cell activation. Thus inducible expression of NFATL1 represents a mechanism by which receptor-dependent signals as well as osmotic stress signals are translated into transcriptional responses that regulate cell function.