The novel immunomodulator FTY720 is effective in experimental models of transplantation and autoimmunity, and is currently undergoing Phase III clinical trials for prevention of kidney graft rejection. In contrast to conventional immunosuppressants, FTY720 does not impair T- and B-cell activation, proliferation and effector function, but interferes with cell traffic between lymphoid organs and blood. The molecular basis for the mode of action of the drug has only recently been established. FTY720, after phosphorylation, acts as a high-affinity agonist at the G protein-coupled sphingosine 1-phosphate receptor-1 (S1P1) on thymocytes and lymphocytes, thereby inducing aberrant internalization of the receptor. This renders the cells unresponsive to the serum lipid sphingosine 1-phosphate (S1P), depriving them from an obligatory signal to egress from lymphoid organs. As a consequence, lymphocytes are unable to recirculate to peripheral inflammatory tissues and graft sites but remain functional in the lymphoid compartment. In addition to the effects on lymphocyte recirculation, the drug acts on endothelial cells and preserves vascular integrity by enhancing adherens junction assembly and endothelial barrier function. The available data establish S1P1 as a key target for FTY720, and further point to therapeutically relevant effects of the drug on lymphocytes and vascular endothelium.