Lymphosarcoma P1798 cells undergo growth arrest when exponentially growing cultures are exposed to 1 micrograms/ml of Rapamycin (Rapa). This growth arrest is accompanied by inhibition of RNA biosynthesis as measured by incorporation of 3H-uridine into the newly synthesized RNA. Approximately 50% inhibition of 3H-uridine incorporation was observed, upon exposure of P1798 cells to 1 microgram/ml Rapa for 24 h. Run-on transcription experiments using nuclei from Rapa-treated cells indicated a dose-dependent inhibition of transcription or rRNA genes. Cells were relieved from this inhibition of transcription when Rapa was removed from the medium. Under similar conditions, transcriptions of U3 snRNA genes remained unaffected. Cytoplasmic extracts prepared from P1798 cells treated with 1 microgram/ml Rapa for 24 h failed to support transcription from cloned mouse rRNA promoter. This treatment does not affect the RNA polymerase I activity of P1798 cells. Addition of a highly purified murine transcription initiation factor specific for RNA polymerase I reconstitutes the extracts from Rapa-treated P1798 cells. Our data indicate that this new immunosuppressive agent modulates transcription of rRNA genes via regulation of specific transcription factor function.