The mechanism by which lithium (Li+) inhibits the protein kinase glycogen synthase kinase-3 (GSK-3) is unknown. Here, we demonstrate that Li+ is a competitive inhibitor of GSK-3 with respect to magnesium (Mg2+), but not to substrate or ATP. This mode of inhibition is conserved between mammalian and Dictyostelium GSK-3 isoforms, and is not experienced with other group I metal ions. As a consequence, the potency of Li+ inhibition is dependent on Mg2+ concentration. We also found that GSK-3 is sensitive to chelation of free Mg2+ by ATP and is progressively inhibited when ATP concentrations exceed that of Mg2+. Given the cellular concentrations of ATP and Mg2+, our results indicate that Li+ will have a greater effect on GSK-3 activity in vivo than expected from in vitro studies and this may be a factor relevant to its use in the treatment of depression.