Leukemic transformation often requires activation of protein kinase B (PKB/c-Akt) and is characterized by increased proliferation, decreased apoptosis, and a differentiation block. PKB phosphorylates and inactivates members of the FOXO subfamily of Forkhead transcription factors. It has been suggested that hyperactivation of PKB maintains the leukemic phenotype through actively repressing FOXO-mediated regulation of specific genes. We have found expression of the transcriptional repressor Id1 (inhibitor of DNA binding 1) to be abrogated by FOXO3a activation. Inhibition of PKB activation or growth factor deprivation also resulted in strong down-regulation of Id1 promoter activity, Id1 mRNA, and protein expression. Id1 is highly expressed in Bcr-Abl-transformed K562 cells, correlating with high PKB activation and FOXO3a phosphorylation. Inhibition of Bcr-Abl by the chemical inhibitor STI571 resulted in activation of FOXO3a and down-regulation of Id1 expression. By performing chromatin immunoprecipitation assays and promoter-mutation analysis, we demonstrate that FOXO3a acts as a transcriptional repressor by directly binding to the Id1 promoter. STI571 treatment, or expression of constitutively active FOXO3a, resulted in erythroid differentiation of K562 cells, which was inhibited by ectopic expression of Id1. Taken together our data strongly suggest that high expression of Id1, through PKB-mediated inhibition of FOXO3a, is critical for maintenance of the leukemic phenotype.