Phosphatidylinositol 3-kinases (PI3K) are divided into three classes, which differ in their substrates and products. Class I generates the inositol phospholipids PI(3)P, PI(3,4)P2, and PI(3,4,5)P3 referred as PIP, PIP2, and PIP3, respectively. Class II produces PIP and PIP2, and class III generates only PIP. Substrate and product differences of the three classes are determined by the activation loops of their catalytic domains. Substitution of the class I activation loop with either class II or III activation loop results in a corresponding change of substrate preference and product restriction. We have evaluated such activation loop substitutions to show that oncogenic activity of class I PI3K is linked to the ability to produce PIP3. We further show that reduction of cellular PIP3 levels by the 5'-phosphatase PIPP interferes with PI3K-induced oncogenic transformation. PIPP also attenuates signaling through Akt and target of rapamycin. Class III PI3K fails to induce oncogenic transformation. Likewise, a constitutively membrane-bound class I PI3K mutant retaining only the protein kinase is unable to induce transformation. We conclude that PIP3 is an essential component of PI3K-mediated oncogenesis and that inability to generate PIP3 abolishes oncogenic potential.