Glycogen synthase kinase-3 (GSK-3) is a critical, negative regulator of diverse signaling pathways. Lithium is a direct inhibitor of GSK-3 and has been widely used to test the putative role of GSK-3 in multiple settings. However, lithium also inhibits other targets, including inositol monophosphatase and structurally related phosphomonoesterases, and thus additional approaches are needed to attribute a given biological effect of lithium to a specific target. For example, lithium is known to increase the inhibitory N-terminal phosphorylation of GSK-3, but the target of lithium responsible for this indirect regulation has not been identified. We have characterized a short peptide derived from the GSK-3 interaction domain of Axin that potently inhibits GSK-3 activity in vitro and in mammalian cells and robustly activates Wnt-dependent transcription, mimicking lithium action. We show here, using the GSK-3 interaction domain peptide, as well as small molecule inhibitors of GSK-3, that lithium induces GSK-3 N-terminal phosphorylation through direct inhibition of GSK-3 itself. Reduction of GSK-3 protein levels, either by RNA interference or by disruption of the mouse GSK-3beta gene, causes increased N-terminal phosphorylation of GSK-3, confirming that GSK-3 regulates its own phosphorylation status. Finally, evidence is presented that N-terminal phosphorylation of GSK-3 can be regulated by the GSK-3-dependent protein phosphatase-1.inhibitor-2 complex.