The PtdIns(3,4,5)P3-dependent activation of protein kinase B (PKB) by 3-phosphoinositide-dependent protein kinases-1 and -2 (PDK1 and PDK2 respectively) is a key event in mediating the effects of signals that activate PtdIns 3-kinase. The catalytic domain of serum- and glucocorticoid-regulated protein kinase (SGK) is 54% identical with that of PKB and, although lacking the PtdIns(3,4, 5)P3-binding pleckstrin-homology domain, SGK retains the residues that are phosphorylated by PDK1 and PDK2, which are Thr256 and Ser422 in SGK. Here we show that PDK1 activates SGK in vitro by phosphorylating Thr256. We also show that, in response to insulin-like growth factor-1 (IGF-1) or hydrogen peroxide, transfected SGK is activated in 293 cells via a PtdIns 3-kinase-dependent pathway that involves the phosphorylation of Thr256 and Ser422. The activation of SGK by PDK1 in vitro is unaffected by PtdIns(3,4,5)P3, abolished by the mutation of Ser422 to Ala, and greatly potentiated by mutation of Ser422 to Asp (although this mutation does not activate SGK itself). Consistent with these findings, the Ser422Asp mutant of SGK is activated by phosphorylation (probably at Thr256) in unstimulated 293 cells, and activation is unaffected by inhibitors of PtdIns 3-kinase. Our results are consistent with a model in which activation of SGK by IGF-1 or hydrogen peroxide is initiated by a PtdIns(3,4, 5)P3-dependent activation of PDK2, which phosphorylates Ser422. This is followed by the PtdIns(3,4,5)P3-independent phosphorylation at Thr256 that activates SGK, and is catalysed by PDK1. Like PKB, SGK preferentially phosphorylates serine and threonine residues that lie in Arg-Xaa-Arg-Xaa-Xaa-Ser/Thr motifs, and SGK and PKB inactivate glycogen synthase kinase-3 similarly in vitro and in co-transfection experiments. These findings raise the possibility that some physiological roles ascribed to PKB on the basis of the overexpression of constitutively active PKB mutants might be mediated by SGK.