Cytokines are multifunctional mediators that classically modulate immune activity by receptor-mediated pathways. Macrophage migration inhibitory factor (MIF) is a cytokine that has a critical role in several inflammatory conditions but that also has endocrine and enzymatic functions. The molecular targets of MIF action have so far remained unclear. Here we show that MIF specifically interacts with an intracellular protein, Jab1, which is a coactivator of AP-1 transcription that also promotes degradation of the cyclin-dependent kinase inhibitor p27Kip1 (ref. 10). MIF colocalizes with Jab1 in the cytosol, and both endogenous and exogenously added MIF following endocytosis bind Jab1. MIF inhibits Jab1- and stimulus-enhanced AP-1 activity, but does not interfere with the induction of the transcription factor NFkappaB. Jab1 activates c-Jun amino-terminal kinase (JNK) activity and enhances endogenous phospho-c-Jun levels, and MIF inhibits these effects. MIF also antagonizes Jab1-dependent cell-cycle regulation by increasing p27Kip1 expression through stabilization of p27Kip1 protein. Consequently, Jab1-mediated rescue of fibroblasts from growth arrest is blocked by MIF. Amino acids 50-65 and Cys 60 of MIF are important for Jab1 binding and modulation. We conclude that MIF may act broadly to negatively regulate Jab1-controlled pathways and that the MIF-Jab1 interaction may provide a molecular basis for key activities of MIF.