Calcineurin is the only known calmodulin (CaM) activated protein phosphatase, which is involved in the regulation of numerous cellular and developmental processes and in calcium-dependent signal transduction. Although commonly assumed that CaM displaces the autoinhibitory domain (AID) blocking substrate access to its active site, the structural basis underlying activation remains elusive. We have created a fused ternary complex (CBA) by covalently linking three polypeptides: CaM, calcineurin regulatory B subunit (CnB) and calcineurin catalytic A subunit (CnA). CBA catalytic activity is comparable to that of fully activated native calcineurin in the presence of CaM. The crystal structure showed virtually no structural change in the active site and no evidence of CaM despite being covalently linked. The asymmetric unit contains four molecules; two parallel CBA pairs are packed in an antiparallel mode and the large cavities in crystal packing near the calcineurin active site would easily accommodate multiple positions of AID-bound CaM. Intriguingly, the conformation of the ordered segment of AID is not altered by CaM; thus, it is the disordered part of AID, which resumes a regular α-helical conformation upon binding to CaM, which is displaced by CaM for activation. We propose that the structural basis of calcineurin activation by CaM is through displacement of the disordered fragment of AID which otherwise impedes active site access.