FKHR is a member of the FOXO subfamily of Forkhead transcription factors, which are important targets for insulin and growth factor signaling. FKHR contains three predicted protein kinase B phosphorylation sites (Thr-24, Ser-256, and Ser-319) that are conserved in other FOXO proteins. We have reported that phosphorylation of Ser-256 is critical for the ability of insulin and insulin-like growth factors to suppress transactivation by FKHR (Guo, S., Rena, G., Cichy, S., He, X., Cohen, P., and Unterman, T. (1999) J. Biol. Chem. 274, 17184-17192) and for its exclusion from the nucleus (Rena, G., Prescott, A. R., Guo, S., Cohen, P., and Unterman, T. G. (2001) Biochem. J. 354, 605-612). Ser-256 is located in a basic region of the FKHR DNA binding domain where phosphorylation may have direct effects on DNA binding and/or nuclear targeting. Phosphorylation of Ser-256 may also be required for the phosphorylation of Thr-24 and Ser-319. Here, we provide the first direct evidence that basic residues in the FKHR DNA binding domain are critical for DNA binding and that Ser-256 phosphorylation alters binding activity. Ser-256 phosphorylation also is critical for regulating nuclear/cytoplasmic trafficking; however, this effect requires Thr-24/Ser-319 phosphorylation. Transient transfection studies with reporter gene constructs in 293 cells reveal that the phosphorylation of Ser-256 can inhibit the function of FKHR independent of Thr-24/Ser-319 phosphorylation. Studies with GFP(1) fusion proteins indicate that Ser-256 phosphorylation is critical for nuclear exclusion of FKHR. However, this effect is disrupted when Thr-24 and Ser-319 are replaced by alanine, indicating that nuclear exclusion of FKHR also requires Thr-24/Ser-319 phosphorylation. Gel shift and fluorescence anisotropy studies reveal that basic residues at the C-terminal end of the FKHR DBD are important for DNA binding, and the introduction of a negative charge at the site of Ser-256 limits binding activity. Binding is rapid and reversible, providing an opportunity for the phosphorylation of Ser-256 and subsequent phosphorylation of Thr-24 and Ser-319 and nuclear exclusion of FKHR.