Diabetic nephropathy is characterized by the rapid onset of hypertrophy and ECM expansion. Previously, we showed that calcineurin phosphatase is required for hypertrophy and ECM synthesis in cultured mesangial cells. Therefore, we examined the effect of calcineurin inhibition on renal hypertrophy and ECM accumulation in streptozotocin-induced diabetic rats. After 2 wk of diabetes, calcineurin protein was increased in whole cortex and glomeruli in conjunction with increased phosphatase activity. Daily administration of cyclosporin A blocked accumulation of both calcineurin protein and calcineurin activity. Also associated with calcineurin upregulation was nuclear localization of the calcineurin substrate NFATc1. Inhibition of calcineurin reduced whole kidney hypertrophy and abolished glomerular hypertrophy in diabetic rats. Furthermore, calcineurin inhibition substantially reduced ECM accumulation in diabetic glomeruli but not in cortical tissue, suggesting a differential effect of calcineurin inhibition in glomerular vs. extraglomerular tissue. Corresponding increases in fibronectin mRNA and transforming growth factor-beta mRNA were observed in tubulointerstitium but not in glomeruli. In summary, calcineurin plays an important role in glomerular hypertrophy and ECM accumulation in diabetic nephropathy.