Activation of phosphatidylinositide 3'-OH kinase (PI 3-kinase) is implicated in mediating a variety of growth factor-induced responses, among which are the inactivation of glycogen synthase kinase-3 (GSK-3) and the activation of the serine/threonine protein kinase B (PKB). GSK-3 inactivation occurs through phosphorylation of Ser-9, and several kinases, such as protein kinase C, mitogen-activated protein kinase-activated protein kinase-1 (p90(Rsk)), p70(S6kinase), and also PKB have been shown to phosphorylate this site in vitro. In the light of the many candidates to mediate insulin-induced GSK-3 inactivation we have investigated the role of PKB by constructing a PKB mutant that exhibits dominant-negative function (inhibition of growth factor-induced activation of PKB at expression levels similar to wild-type PKB), as currently no such mutant has been reported. We observed that the PKB mutant (PKB-CAAX) acts as an efficient inhibitor of PKB activation and also of insulin-induced GSK-3 regulation. Furthermore, it is shown that PKB and GSK-3 co-immunoprecipitate, indicating a direct interaction between GSK-3 and PKB. An additional functional consequence of this interaction is implicated by the observation that the oncogenic form of PKB, gagPKB induces a cellular relocalization of GSK-3 from the cytosolic to the membrane fraction. Our results demonstrate that PKB activation is both necessary and sufficient for insulin-induced GSK-3 inactivation and establish a linear pathway from insulin receptor to GSK-3. Regulation of GSK-3 by PKB is likely through direct interaction, as both proteins co-immunoprecipitate. This interaction also resulted in a translocation of GSK-3 to the membrane in cells expressing transforming gagPKB.