Cyclosporine (CSA) decreases lymphokine synthesis and keratinocyte proliferation in vitro, but its in vivo mechanism of action in treating recalcitrant psoriasis is incompletely understood. Ten psoriasis patients were treated with CSA (27.5 mg/kg/d) with clinical improvement in nine of 10 patients. Skin biopsies before and after 1-3 months of CSA treatment were studied for evidence of immune and keratinocyte activation using immunoperoxidase and Northern blotting analysis. The number of activated, IL-2 receptor+ T cells in plaques after CSA treatment was reduced in all patients by a mean of 60%. Seven of 10 patients showed a decrease in keratinocyte HLA-DR expression; five of seven showed a decrease in gamma-IP-10 immunoreactivity, suggesting a decline in gamma interferon levels in plaques after CSA therapy. We studied the effect of CSA treatment in vivo on TGF-α, IL-6, and keratin K16 expression, three markers of keratinocyte growth activation. Expression of keratinocyte TGF-α and IL-6, which are elevated in active psoriatic epidermis, did not change in these patients after CSA treatment. The majority of patients (five of eight) continued to express the hyperproliferative keratin K16 after CSA treatment. Our results suggest that the predominant direct mechanism of action of Cyclosporine in vivo is a diminution of T-cell activation in plaques, with attendant decreased lymphokine production.