Protein kinase B (PKB), an Ag receptor activated serine-threonine kinase, controls various cellular processes including proliferation and survival. However, PKB function in thymocyte development is still unclear. We report PKB as an important negative regulator of the calcineurin (CN)-regulated transcription factor NFAT in early T cell differentiation. Expression of a hyperactive version of CN induces a profound block at the CD25+CD44- double-negative (DN) 3 stage of T cell development. We correlate this arrest with up-regulation of Bcl-2, CD2, CD5, and CD27 proteins and constitutive activation of NFAT but a severe impairment of Rag1, Rag2, and intracellular TCR-beta as well as intracellular TCR-gammadelta protein expression. Intriguingly, simultaneous expression of active myristoylated PKB inhibits nuclear NFAT activity, restores Rag activity, and enables DN3 cells to undergo normal differentiation and expansion. A correlation between the loss of NFAT activity and Rag1 and Rag2 expression is also found in myristoylated PKB-induced CD4+ lymphoma cells. Furthermore, ectopic expression of NFAT inhibits Rag2 promoter activity in EL4 cells, and in vivo binding of NFATc1 to the Rag1 and Rag2 promoter and cis-acting transcription regulatory elements is verified by chromatin immunoprecipitation analysis. The regulation of CN/NFAT signaling by PKB may thus control receptor regulated changes in Rag expression and constitute a signaling pathway important for differentiation processes in the thymus and periphery.