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. FTY720 is a structural analogue of sphingosine-1-phosphate (S1P) and activates several of the S1P receptors. We show that FTY720 induces endothelium-dependent arterial vasodilation in phenylephrine precontracted mouse aortae. Vasodilation did not occur in thoracic aortic rings from eNOS-deficient mice, implicating and effect dependent of activation of the eNOS/NO pathway. Accordingly, FTY720 induced NO release, Akt-dependent eNOS phosphorylation and activation in human endothelial cells. For biological efficacy, FTY720 required endogenous phosphorylation, since addition of the sphingosine kinase antagonist N',N-dimethylsphingosine (DMS) prevented activation of eNOS in vitro and inhibited vasodilation in isolated arteries. The endothelial phosphorylation of FTY720 was extremely rapid with almost complete conversion after 10 minutes as determined by mass spectrometry. Finally, we identified the lysophospholipid receptor S1P3 as the S1P receptor responsible for arterial vasodilation by FTY720, as the effect was completely abolished in arteries from S1P3-deficient mice. In summary, we have identified FTY720 as the first immunomodulator for prevention of organ graft rejection in clinical development that, in addition, positively affects the endothelium by stimulating NO production, and thus potentially displaying beneficial effects on transplant survival beyond classical T cell immunosuppression.