Lithium is one of the most widely used drugs for treating bipolar (manic-depressive) disorder. Despite its efficacy, the molecular mechanism underlying its action has not been elucidated. One recent study has proposed that lithium inhibits glycogen synthase kinase-3 and thereby affects multiple cellular functions. Because glycogen synthase kinase-3 regulates the phosphorylation of tau (microtubule-binding protein that forms paired helical filaments in neurons of the Alzheimer's disease brain), we hypothesized that lithium could affect tau phosphorylation by inhibiting glycogen synthase kinase-3. Using cultured human NT2N neurons, we demonstrate that lithium reduces the phosphorylation of tau, enhances the binding of tau to microtubules, and promotes microtubule assembly through direct and reversible inhibition of glycogen synthase kinase-3. These results provide new insights into how lithium mediates its effects in the central nervous system, and these findings could be exploited to develop a novel intervention for Alzheimer's disease.