The PP2B protein phosphatase, also known as calcineurin, is a regulator of ion homeostasis in yeast cells. We have investigated the physiological consequences of constitutive expression of a recombinant form of calcineurin in which the Ca2+/calmodulin-binding and autoinhibitory domains of the catalytic subunit were deleted. The concomitant expression of the regulatory subunit along with the truncated catalytic subunit resulted in high tolerance to toxic levels of Na+ and Li+. This activated form of calcineurin substituted for the Na+ stress signal to promote the expression of the ENA1 gene, encoding a P-ATPase pump, and to induce the transition of the K+ uptake system to the high affinity mode that restricts influx of Na+ and Li+. In addition, the transcriptional responsiveness of ENA1 to Na+ stress was enhanced. These results demonstrate that calcineurin has a pivotal role in a signaling cascade activated by ion stress in yeast. Moreover, we found that changes in the level of calcineurin activity affected budding pattern and cell morphology. Cells expressing the truncated calcineurin were elongated and budded in an unipolar pattern, whereas calcineurin-deficient mutants budded randomly. These results suggest that calcineurin may also act in the establishment of cell polarity.