Bruton's tyrosine kinase (Btk) binds to phosphatidylinositol-3,4,5-trisphosphate (PtdIns-3,4,5-P(3)) through the Btk pleckstrin homology (PH) domain, an interaction thought to be required for Btk membrane translocation during B cell receptor signaling. Here, we report that interaction of PtdIns-3,4,5-P(3) with the PH domain of Btk directly induces Btk enzymatic activation in an in vitro kinase assay. A point mutation that reduces interaction of PtdIns-3,4,5-P(3) with the Btk PH domain blocks in vitro PtdIns-3,4,5-P(3)-dependent Btk activation, whereas the PH domain deletion enhances Btk basal activity but eliminates the PtdIns-3,4,5-P(3)-dependent stimulation. Btk kinase activity and the Btk activation loop phosphorylation site are both required for the PtdIns-3,4,5-P(3)-mediated stimulation of Btk kinase activity. Together, these results suggest that the Btk PH domain is positioned such that it normally suppresses both Btk kinase activity and access to substrates; when interacting with PtdIns-3,4,5-P(3), this suppression is relieved, producing apparent Btk activation. In addition, using Src family kinase inhibitors and Btk catalytically inactive mutants, we demonstrate that in vivo, the activation of Btk is due to both Lyn phosphorylation and PtdIns-3,4,5-P(3)-mediated direct activation. Thus, the Btk-PtdIns-3,4,5-P(3) interaction serves to translocate Btk to the membrane and directly regulate its signaling function.