Although AKT1 (v-akt murine thymoma viral oncogene homologue 1) kinase is a central member of possibly the most frequently activated proliferation and survival pathway in cancer, mutation of AKT1 has not been widely reported. Here we report the identification of a somatic mutation in human breast, colorectal and ovarian cancers that results in a glutamic acid to lysine substitution at amino acid 17 (E17K) in the lipid-binding pocket of AKT1. Lys 17 alters the electrostatic interactions of the pocket and forms new hydrogen bonds with a phosphoinositide ligand. This mutation activates AKT1 by means of pathological localization to the plasma membrane, stimulates downstream signalling, transforms cells and induces leukaemia in mice. This mechanism indicates a direct role of AKT1 in human cancer, and adds to the known genetic alterations that promote oncogenesis through the phosphatidylinositol-3-OH kinase/AKT pathway. Furthermore, the E17K substitution decreases the sensitivity to an allosteric kinase inhibitor, so this mutation may have important clinical utility for AKT drug development.