P-element somatic inhibitor (PSI) is a KH domain-containing splicing factor highly expressed in Drosophila somatic tissues. Here we have identified a direct association of PSI with the spliceosomal U1 small nuclear ribonucleoprotein (snRNP) particle in somatic nuclear extracts. This interaction is mediated by highly conserved residues within the PSI C-terminal AB motif and the U1 snRNP-specific 70K protein. Through the AB motif, PSI modulates U1 snRNP binding on the P-element third intron (IVS3) 5' splice site and its upstream exonic regulatory element. Ectopic expression experiments in the Drosophila female germline demonstrate that the AB motif also contributes to IVS3 splicing inhibition in vivo. These data show that the processing of specific target transcripts, such as the P-element mRNA, is regulated by a functional PSI-U1 snRNP interaction in Drosophila.