Several Hsp90 (heat shock protein 90) inhibitors are currently under clinical evaluation as anticancer agents. However, the correlation between the duration and magnitude of Hsp90 inhibition and the downstream effects on client protein degradation and cancer cell growth inhibition has not been thoroughly investigated. To investigate the relationship between Hsp90 inhibition and cellular effects, we developed a method that measures drug occupancy on Hsp90 after treatment with the Hsp90 inhibitor IPI-504 in living cells and in tumor xenografts. In cells, we find the level of Hsp90 occupancy to be directly correlated with cell growth inhibition. At the molecular level, the relationship between Hsp90 occupancy and Hsp90 client protein degradation was examined for different client proteins. For sensitive Hsp90 clients (e.g. HER2 (human epidermal growth factor receptor 2), client protein levels directly mirror Hsp90 occupancy at all time points after IPI-504 administration. For insensitive client proteins, we find that protein abundance matches Hsp90 occupancy only after prolonged incubation with drug. Additionally, we investigate the correlation between plasma pharmacokinetics (PK), tumor PK, pharmacodynamics (PD) (client protein degradation), tumor growth inhibition, and Hsp90 occupancy in a xenograft model of human cancer. Our results indicate Hsp90 occupancy to be a better predictor of PD than either plasma PK or tumor PK. In the nonsmall cell lung cancer xenograft model studied, a linear correlation between Hsp90 occupancy and tumor growth inhibition was found. This novel binding assay was evaluated both in vitro and in vivo and could be used as a pharmacodynamic readout in the clinic.