The Wilms' tumor suppressor gene, WT1, encodes a transcription factor in the zinc finger family, which binds to GC-rich sequences and functions as a transcriptional activator or repressor. The WT1 protein plays a crucial role in urogenital development in mammals and its function is thought to be conserved during vertebrate evolution. Although accumulating evidence suggests that WT1 regulates a subset of genes including growth factor and growth factor receptor genes, little is known about regulators or signal cascades that could modulate the function of WT1. In this study, we show that the WT1 protein expressed exogenously in fibroblasts was phosphorylated in vivo, and that treatment with forskolin, which activates the cAMP-dependent protein kinase (PKA) in vivo, induced phosphorylation of additional sites in WT1. We identified the forskolin-induced phosphorylation sites as Ser-365 and Ser-393, which lie in the zinc finger domain in zinc fingers 2 and 3, respectively. PKA phosphorylated WT1 at Ser-365 and Ser-393 in vitro, as well as at additional sites, and this phosphorylation abolished the DNA-binding activity of WT1 in vitro. Using WT1 mutants in which Ser-365 and Ser-393 were mutated to Ala individually and in combination, we showed that phosphorylation of these sites was critical for inhibition of DNA binding in vivo. Thus, coexpression of the PKA catalytic subunit with wild type WT1 reduced the level of WT1 DNA-binding activity detected in nuclear extracts, and decreased transcriptional repression activity in vivo. In contrast to wild type WT1, all of the phosphorylation site mutants retained significant DNA-binding activity and repression activity in the presence of PKA. Analysis of the mutants showed that phosphorylation of Ser-365 and Ser-395 had additive inhibitory effects on WT1 DNA-binding in vivo and that phosphorylation at both sites was required for neutralization of repression activity. Therefore, we conclude that PKA modulates the activity of WT1 in vivo through phosphorylation of Ser-365 and Ser-393, which inhibits DNA binding. This in turn results in a decrease in WT1 transcriptional repression. Our findings provide the first evidence that the function of WT1 can be modulated by its phosphorylation in vivo.