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.