ABI1, a protein phosphatase 2C, is a key component of ABA signal transduction in Arabidopsis that regulates numerous ABA responses, such as stomatal closure, seed germination and inhibition of vegetative growth. The abi1-1 mutation, so far the only characterized dominant allele for ABI1, impairs ABA responsitivity in both seeds and vegetative tissues. The site of action of ABI1 is unknown. We show that there is an essential requirement for nuclear localization of abi1 to confer insensitivity towards ABA responses. Transient analyses in protoplasts revealed a strict dependence of wild-type ABI1 and mutant abi1 on a functional nuclear localization sequence (NLS) for regulating ABA-dependent gene expression. Arabidopsis lines with ectopic expression of various abi1 forms corroborated the necessity of a functional NLS to control ABA sensitivity. Disruption of the NLS function in abi1 rescued ABA-controlled gene transcription to wild-type levels, but also attenuated abi1-conferred insensitivity towards ABA during seed germination, root growth and stomatal movement. The mutation in the PP2C resulted in a preferential accumulation of the protein in the nucleus. Application of a proteosomal inhibitor led to both a preferential nuclear accumulation of ABI1 and an enhancement of PP2C-dependent inhibitory action on the ABA response. Thus, abi1-1 acts as a hypermorphic allele, and ABI1 reprograms sensitivity towards ABA in the nucleus.