The X-ray structure of the ternary complex of a calcineurin A fragment, calcineurin B, FKBP12, and the immunosuppressant drug FK506 (also known as tacrolimus) has been determined at 2.5 A resolution, providing a description of how FK506 functions at the atomic level. In the structure, the FKBP12-FK506 binary complex does not contact the phosphatase active site on calcineurin A that is more than 10 A removed. Instead, FKBP12-FK506 is so positioned that it can inhibit the dephosphorylation of its macromolecular substrates by physically hindering their approach to the active site. The ternary complex described here represents the three-dimensional structure of a Ser/Thr protein phosphatase and provides a structural basis for understanding calcineurin inhibition by FKBP12-FK506.