The serine/threonine kinase AKT/PKB plays a critical role in cancer and represents a rational target for therapy. Although efforts in targeting AKT pathway have accelerated in recent years, relatively few small molecule inhibitors of AKT have been reported. The development of selective AKT inhibitors is further challenged by the extensive conservation of the ATP-binding sites of the AGC kinase family. In this report, we have conducted a high-throughput screen for inhibitors of activated AKT1. We have identified lactoquinomycin as a potent inhibitor of AKT kinases (AKT1 IC(50), 0.149 +/- 0.045 micromol/L). Biochemical studies implicated a novel irreversible interaction of the inhibitor and AKT involving a critical cysteine residue(s). To examine the role of conserved cysteines in the activation loop (T-loop), we studied mutant AKT1 harboring C296A, C310A, and C296A/C310A. Whereas the ATP-pocket inhibitor, staurosporine, indiscriminately targeted the wild-type and all three mutant-enzymes, the inhibition by lactoquinomycin was drastically diminished in the single mutants C296A and C310A, and completely abolished in the double mutant C296A/C310A. These data strongly implicate the binding of lactoquinomycin to the T-loop cysteines as critical for abrogation of catalysis, and define an unprecedented mechanism of AKT inhibition by a small molecule. Lactoquinomycin inhibited cellular AKT substrate phosphorylation induced by growth factor, loss of PTEN, and myristoylated AKT. The inhibition was substantially attenuated by coexpression of C296A/C310A. Moreover, lactoquinomycin reduced cellular mammalian target of rapamycin signaling and cap-dependent mRNA translation initiation. Our results highlight T-loop targeting as a new strategy for the generation of selective AKT inhibitors.