The AMP-activated protein kinase (AMPK) system monitors cellular energy status by sensing AMP and ATP, and is a key regulator of energy balance at the cellular and whole-body levels. AMPK exists as heterotrimeric alphabetagamma complexes, and the gamma subunits contain two tandem domains that bind the regulatory nucleotides. There is a sequence in the first of these domains that is conserved in gamma subunit homologues in all eukaryotes, and which resembles the sequence around sites phosphorylated on target proteins of AMPK, except that it has a non-phosphorylatable residue in place of serine. We propose that in the absence of AMP this pseudosubstrate sequence binds to the active site groove on the alpha subunit, preventing phosphorylation by the upstream kinase, LKB1, and access to downstream targets. Binding of AMP causes a conformational change that prevents this interaction and relieves the inhibition. We present several lines of evidence supporting this hypothesis.