The NFAT gene encodes the only homolog in Drosophila of the five human Nuclear Factors of Activated T-cells, NFAT1-5. Its rel homology domain is most similar to that of NFAT5, and like the latter it lacks conserved AP1 and calcineurin binding sites. Two promoters give rise to alternative transcripts that are ubiquitously expressed in several different tissues. We generated mutants for each transcript, as well as a mutant that lacks all functional NFAT expression. Only the null mutant generated a visible phenotype, indicating that the two transcripts are redundant. The mutants are sensitive to high salt diet and have enlarged anal pads in hypotonic solution, suggesting that NFAT, like mammalian NFAT5, is regulating the osmotic balance. A phylogenetic reconstruction puts the Drosophila gene near the root of the NFAT tree, indicating that regulation of tonicity may be an ancestral function of the NFAT family.