We have investigated the role of subcellular localization in the regulation of protein kinase B (PKB) activation. The myristoylation/palmitylation motif from the Lck tyrosine kinase was attached to the N terminus of protein kinase B to alter its subcellular location. Myristoylated/palmitylated (m/p)-PKBα was associated with the plasma membrane of transfected cells, whereas the wild-type kinase was mostly cytosolic. The activity of m/p-PKBα was 60-fold higher compared with the unstimulated wild-type enzyme, and could not be stimulated further by growth factors or phosphatase inhibitors. In vivo 32P labeling and mutagenesis demonstrated that m/p-PKBα activity was due to phosphorylation on Thr308 and Ser478, that are normally induced on PKB following stimulation of the cells with insulin or insulin-like growth factor-1 (IGF-1). A dominant negative form of phosphoinositide 3-kinase (PI3-K) did not affect m/pPKBα activity. The pleckstrin homology (PH) domain of m/p-PKBα was not required for its activation or phosphorylation on Thr308 and Ser473, suggesting that this domain may serve as a membrane-targeting module. Consistent with this view, PKBα was translocated to the plasma membrane within minutes after stimulation with IGF-1. This translocation required the PH domain and was sensitive to wortmannin. Our results indicate that PI3-K activity is required for translocation of PKB to the plasma membrane, where its activation occurs through phosphorylation of the same sites that are induced by insulin or IGF- 1. Following activation the kinase detached from the membrane and translocated to the nucleus.