Tau is a neuronal microtubule-associated protein that appears to function in the formation and maintenance of axons by influencing microtubule organisation. Tau is a phosphoprotein and is more heavily phosphorylated in fetal than in adult brain, and is also hyperphosphorylated in Alzheimer's disease where it forms the major component of paired helical filaments (PHFs). Tau phosphorylation probably modulates microtubule dynamics since in vitro, phosphorylated tau has a reduced affinity for microtubules and is less potent at promoting microtubule assembly. In order to understand how phosphorylation effects cellular microtubule organisation, we studied 3T3 and CHO cells transfected with tau and the tau kinase GSK-3 beta. Tau transfected cells displayed prominent bundles of microtubules that did not appear to be nucleated by a microtubule-organising centre. Co-transfection of tau with GSK-3 beta led to increased phosphorylation of tau and also to a reduction in microtubule bundling such that the microtubule network in many of the tau/GSK-3 beta transfected cells appeared similar to non-transfected interphase cells. Transfection of a mutant tau, in which five of the known GSK-3 beta targeted phosphorylation sites were mutated to alanine so as to preclude phosphorylation, also induced microtubule bundling. However, co-transfection of this mutant with GSK-3 beta did not diminish the bundling effect. Biochemical analyses of microtubule and cytosolic fractions from the transfected cells demonstrated that GSK-3 beta-mediated phosphorylation of tau reduced its affinity for microtubules. These results suggest that phosphorylation of tau by GSK-3 beta modulates its ability to organise microtubules into ordered arrays such as are found in axons.