Bruton's tyrosine kinase (Btk) plays a central role in signal transduction pathways regulating survival, activation, proliferation, and differentiation of B-lineage lymphoid cells. A number of cell signaling studies clearly show that Btk is activated by Lyn, a Src family kinase, through phosphorylation on activation loop tyrosine 551 (Y(551)). However, the detailed molecular mechanism regulating Btk activation remains unclear. In particular, we do not fully understand the correlation of kinase activity with Y(551) phosphorylation, and the role of the noncatalytic domains of Btk in the activation process. Insect cell expressed full-length Btk is enzymatically active, but a truncated version of Btk, composed of only the kinase catalytic domain, is largely inactive. Further characterization of both forms of Btk by mass spectrometry showed partial phosphorylation of Y(551) of the full-length enzyme and none of the truncated kinase domain. To determine whether the lack of activity of the kinase domain was due to the absence of Y(551) phosphorylation, we developed an in vitro method to generate Y(551) monophosphorylated Btk kinase domain fragment using the Src family kinase Lyn. Detailed kinetic analyses demonstrated that the in vitro phosphorylated Btk kinase domain has a similar activity as the full-length enzyme while the unphosphorylated kinase domain has a very low k(cat) and is largely inactive. A divalent magnesium metal dependence study established that Btk requires a second magnesium ion for activity. Furthermore, our analysis revealed significant differences in the second metal-binding site among the kinase domain and the full-length enzyme that likely account for the difference in their catalytic profile. Taken together, our study provides important mechanistic insights into Btk kinase activity and phosphorylation-mediated regulation.