The serine/threonine kinase protein kinase B (PKB)/Akt is a critical regulator of insulin signaling, cell survival, and oncogenesis. The activation mechanisms of this key kinase are well characterized. In contrast, inactivation of PKB signaling by phosphatases is less well understood. To study the dynamics of PKB signaling in live cells, we generated a genetically encoded fluorescent reporter for PKB activity that reversibly responds to stimuli activating phosphatidylinositol 3-kinase. Specifically, phosphorylation of the reporter expressed in mammalian cells causes changes in fluorescence resonance energy transfer, allowing real-time imaging of phosphorylation catalyzed by PKB. Because of its reversibility, the reporter also allows termination of PKB signaling by phosphatases to be monitored. We found that PKB signaling in the cytosol was more rapid and more transient compared with that in the nucleus, suggesting the presence of differentially regulated phosphatase activity in these two compartments. Furthermore, targeting of the reporter to the plasma membrane, where PKB is activated, resulted in accelerated and prolonged response compared with the response in the cytosol, suggesting that release of PKB or its substrates from the membrane is required for desensitization of PKB signaling. These data reveal spatio-temporal gradients of both signal propagation and signal termination in PKB signaling.