Tacrolimus (FK506) is a widely used immunosuppressive drug. Its effects on hepatic fibrosis have been controversial and attributed to immunosuppression. We show that in vitro FK506, inhibited synthesis of type I collagen polypeptides, without affecting expression of collagen mRNAs. In vivo, administration of FK506 at a dose of 4 mg/kg completely prevented development of alcohol/carbon tetrachloride induced liver fibrosis in rats. Activation of hepatic stellate cells (HSCs) was absent in the FK506 treated livers and expression of collagen α2(I) mRNA was at normal levels. Collagen α1(I) mRNA was increased in the FK506 treated livers, but this mRNA was not translated into α1(I) polypeptide. No significant inflammation was associated with the fibrosis model used. FK506 binding protein 3 (FKBP3) is one of cellular proteins which binds FK506 with high affinity. We discovered that FKBP3 interacts with LARP6 and LARP6 is the major regulator of translation and stability of collagen mRNAs. In the presence of FK506 the interaction between FKBP3 and LARP6 is weakened and so is the pull down of collagen mRNAs with FKBP3. We postulate that FK506 inactivates FKBP3 and that lack of interaction of LARP6 and FKBP3 results in aberrant translation of collagen mRNAs and prevention of fibrosis. This is the first report of such activity of FK506 and may renew the interest in using this drug to alleviate hepatic fibrosis.