Insulin stimulates protein synthesis and cell growth by activation of the protein kinases Akt (also known as protein kinase B, PKB) and mammalian target of rapamycin (mTOR). It was reported that Akt activates mTOR by phosphorylation and inhibition of tuberous sclerosis complex 2 (TSC2). However, in recent studies the physiological requirement of Akt phosphorylation of TSC2 for mTOR activation has been questioned. Here, we identify PRAS40 (proline-rich Akt/PKB substrate 40 kDa) as a novel mTOR binding partner that mediates Akt signals to mTOR. PRAS40 binds the mTOR kinase domain and its interaction with mTOR is induced under conditions that inhibit mTOR signalling, such as nutrient or serum deprivation or mitochondrial metabolic inhibition. Binding of PRAS40 inhibits mTOR activity and suppresses constitutive activation of mTOR in cells lacking TSC2. PRAS40 silencing inactivates insulin-receptor substrate-1 (IRS-1) and Akt, and uncouples the response of mTOR to Akt signals. Furthermore, PRAS40 phosphorylation by Akt and association with 14-3-3, a cytosolic anchor protein, are crucial for insulin to stimulate mTOR. These findings identify PRAS40 as an important regulator of insulin sensitivity of the Akt-mTOR pathway and a potential target for the treatment of cancers, insulin resistance and hamartoma syndromes.