The mammalian signalling pathway involving class I PI3K (phosphoinositide 3-kinase), PTEN (phosphatidylinositol 3-phosphatase) and PKB (protein kinase B)/c-Akt has roles in multiple processes, including cell proliferation and apoptosis. To facilitate novel approaches for genetic, molecular and pharmacological analyses of these proteins, we have reconstituted this signalling pathway by heterologous expression in the unicellular eukaryote, Saccharomyces cerevisiae (yeast). High-level expression of the p110 catalytic subunit of mammalian PI3K dramatically inhibits yeast cell growth. This effect depends on PI3K kinase activity and is reversed partially by a PI3K inhibitor (LY294002) and reversed fully by co-expression of catalytically active PTEN (but not its purported yeast orthologue, Tep1). Growth arrest by PI3K correlates with loss of PIP2 (phosphatidylinositol 4,5-bisphosphate) and its conversion into PIP3 (phosphatidylinositol 3,4,5-trisphosphate). PIP2 depletion causes severe rearrangements of actin and septin architecture, defects in secretion and endocytosis, and activation of the mitogen-activated protein kinase, Slt2. In yeast producing PIP3, PKB/c-Akt localizes to the plasma membrane and its phosphorylation is enhanced. Phospho-specific antibodies show that both active and kinase-dead PKB/c-Akt are phosphorylated at Thr308 and Ser473. Thr308 phosphorylation, but not Ser473 phosphorylation, requires the yeast orthologues of mammalian PDK1 (3-phosphoinositide-dependent protein kinase-1): Pkh1 and Pkh2. Elimination of yeast Tor1 and Tor2 function, or of the related kinases (Tel1, Mec1 and Tra1), did not block Ser473 phosphorylation, implicating another kinase(s). Reconstruction of the PI3K/PTEN/Akt pathway in yeast permits incisive study of these enzymes and analysis of their functional interactions in a simplified context, establishes a new tool to screen for novel agonists and antagonists and provides a method to deplete PIP2 uniquely in the yeast cell.