The activity of protein kinase C is reversibly regulated by an autoinhibitory pseudosubstrate, which blocks the active site of the enzyme in the absence of activators. However, before it can be allosterically regulated, protein kinase C must first be processed by three ordered phosphorylations, the first of which is modification of the activation loop catalyzed by the phosphoinositide-dependent kinase-1 (PDK-1). Here we use limited proteolysis to show that 1) newly synthesized protein kinase C adopts a conformation in which its pseudosubstrate sequence is removed from the active site, and 2) this exposure is essential to allow PDK-1 to phosphorylate the enzyme. Precursor (unphosphorylated) protein kinase C betaII obtained by 1) in vitro transcription and translation, 2) expression of a phosphorylation-deficient mutant (T500V), or 3) in vivo labeling with a pulse of [(35)S]cysteine/methionine is cleaved at the amino-terminal pseudosubstrate by the endoproteinase Arg-C. In marked contrast to mature (phosphorylated) enzyme, proteolysis occurs in the absence of lipid activators, revealing that precursor protein kinase C has its pseudosubstrate sequence removed constitutively. Additionally, we show that PDK-1 is unable to phosphorylate protein kinase C when the active site is sterically blocked by a peptide substrate. Neither can mature enzyme be dephosphorylated when the active site is blocked by binding either the pseudosubstrate sequence or a heterologous substrate. Thus, the accessibility of the activation loop to both phosphorylation and dephosphorylation requires an exposed pseudosubstrate. In summary, newly synthesized protein kinase C adopts a conformation in which its pseudosubstrate sequence is removed from the active site, rendering the activation loop accessible to phosphorylation by PDK-1. Phosphorylation serves as a conformational switch to position the pseudosubstrate so that it blocks the active site, a conformation that is maintained until stimulus-dependent membrane binding releases it, thus activating the enzyme.