Protein kinase B/Akt plays crucial roles in promoting cell survival and mediating insulin responses. The enzyme is stimulated by phosphorylation at two regulatory sites: Thr 309 of the activation segment and Ser 474 of the hydrophobic motif, a conserved feature of many AGC kinases. Analysis of the crystal structures of the unphosphorylated and Thr 309 phosphorylated states of the PKB kinase domain provides a molecular explanation for regulation by Ser 474 phosphorylation. Activation by Ser 474 phosphorylation occurs via a disorder to order transition of the alphaC helix with concomitant restructuring of the activation segment and reconfiguration of the kinase bilobal structure. These conformational changes are mediated by a phosphorylation-promoted interaction of the hydrophobic motif with a channel on the N-terminal lobe induced by the ordered alphaC helix and are mimicked by peptides corresponding to the hydrophobic motif of PKB and potently by the hydrophobic motif of PRK2.