CTLA4 is currently viewed as a late-appearing T cell surface receptor which is able to inhibit the proliferation of activated T cells. We sought to identify how CTLA4 ligation exerts these anti-proliferative effects by studying its influence on the activities of the relevant nuclear transcription factors AP-1, NFAT and NF-kappaB. We found that cross-linking CTLA4 on activated T cells completely blocks AP-1 and NFAT transcription factor activity before any effects on T cell proliferation can be observed, with NF-kappaB activity affected to a lesser degree. The suppression of AP-1 and NFAT transcriptional activity correlates with reduced levels of AP-1 and NFAT DNA binding as early as 10 h after T cell activation, prior to detectable up-regulation of CTLA4 on the T cell surface. Additionally, inhibitory effects on T cell proliferation only occurred when CTLA4 molecules were ligated in proximity to signaling TCR complexes, and inhibition of transcription factor DNA binding and activity was observed in the absence of CD28 stimulation. CTLA4 can thus act early during T cell activation to reduce the activity of several key nuclear transcription factors important for continued T cell proliferation and differentiation.