The activity and intracellular localization of protein kinase C (PKC) family members are controlled by phosphorylation at three highly conserved sites in the catalytic kinase domain. In the case of the novel PKCepsilon isoform, these are Thr(566) in the activation loop, Thr(710) in the turn motif and Ser(729) in the C-terminal hydrophobic motif. In the present study, we analysed the contribution of the phosphoinositide-dependent kinase 1 (PDK-1) and PKCepsilon kinase activity in controlling the phosphorylation of Thr(566) and Ser(729). In NIH 3T3 fibroblasts, PKCepsilon migrated as a single band, and stimulation with platelet-derived growth factor resulted in the appearance of a second band with a slower electrophoretic mobility, concomitant with an increase in phosphorylation of Thr(566) and Ser(729). Cells transfected with an active PDK-1 allele also resulted in increased PKCepsilon Thr(566) and Ser(729) phosphorylation, whereas an active myristoylated PKCepsilon mutant was constitutively phosphorylated at these sites. Protein kinase-inactive mutants of PKCepsilon were not phosphorylated at Ser(729) in cells, and phosphorylation of this site leads to dephosphorylation of the activation-loop Thr(566), an effect which can be reversed with either okadaic acid or co-transfection with active PDK-1. In vitro, PDK-1 catalysed the phosphorylation of purified PKCepsilon in the presence of mixed micelles containing either diacylglycerol or PtdIns(3,4,5)P(3), concomitant with an increase in Ser(729) phosphorylation. These studies reveal that the mechanism of phosphorylation of a novel PKC is the same as that for conventional PKCs: PDK-1 phosphorylation of the activation loop triggers autophosphorylation of the hydrophobic motif. However, the regulation of this phosphorylation is different for novel and conventional PKCs. Specifically, the phosphorylation of novel PKCs is regulated rather than constitutive.