The Ca(2+)/calmodulin-dependent protein phosphatase calcineurin (CN), a heterodimer composed of a catalytic subunit A and an essential regulatory subunit B, plays critical functions in various cellular processes such as cardiac hypertrophy and T cell activation. It is the target of the most widely used immunosuppressants for transplantation, tacrolimus (FK506) and cyclosporin A. However, the structure of a large part of the CNA regulatory region remains to be determined, and there has been considerable debate concerning the regulation of CN activity. Here, we report the crystal structure of full-length CN (β isoform), which revealed a novel autoinhibitory segment (AIS) in addition to the well-known autoinhibitory domain (AID). The AIS nestles in a hydrophobic intersubunit groove, which overlaps the recognition site for substrates and immunosuppressant-immunophilin complexes. Indeed, disruption of this AIS interaction results in partial stimulation of CN activity. More importantly, our biochemical studies demonstrate that calmodulin does not remove AID from the active site, but only regulates the orientation of AID with respect to the catalytic core, causing incomplete activation of CN. Our findings challenge the current model for CN activation, and provide a better understanding of molecular mechanisms of CN activity regulation.