This study was set out to empirically investigate the impact of four selected macroeconomic variables which includes inflation, prime lending rate, foreign exchange rate and real gross domestic product on the performance of the Nigerian capital market. The NSE all-share index and market capitalization were used as proxies for capital market performance. Quarterly time series data covering the period between 1986 and 2009 are used. The analysis starts with examining stochastic characteristics of each time series by testing their stationarity using Augmented Dickey Fuller (ADF) test. The findings show that only inflation is stationary at level, while the other time series are stationary at either first or second difference. The Johansen cointegration procedure indicates that the variables are co-integrated. The likelihood ratio revealed two cointegrating equations in both cases. From the error correction model, the following interesting findings are made; real gross domestic product has positive impact on the performance of the capital market in Nigeria. The study shows that the high rising inflation rate in Nigeria impacts negatively on the performance of the stock market. But while its negative impact is significant at 5% on all-share index, it remained insignificant on market capitalization. Also foreign exchange rate of naira to one US dollar does not have any significant impact on capital market performance and prime lending rate has a negative impact on capital market performance.Further findings show that previous stock market performance has a positive impact on the present performance. Lastly, the findings are further reinforced by the presence of a long-term equilibrium relationship, as evidenced by the co-integration and stability of the model. The coefficients of the error correction terms are negative, significant and less than one, which justifies the use of an ECM specification of the model. The study recommended that government should formulate active and flexible monetary policies to check unfavorable developments in the market as they arise and the Federal government should continue to pay particular attention to price stability as one of the key macroeconomic policy objectives in order to curb inflation.