Erlotinib (Tarceva), an epidermal growth factor receptor (EGFR) tyrosine kinase inhibitor, has clinical activity in advanced lung cancer, but disease that initially responds to erlotinib eventually progresses. The mechanism of this acquired resistance is unclear. We established two erlotinib-resistant pools of A-431 cells, a well-characterized epidermoid cancer cell line that constitutively overexpresses EGFR and is sensitive to erlotinib, by continuous exposure to erlotinib over a 6-month period. The extent of EGFR gene amplification or mutation of the EGFR tyrosine kinase domain was not altered in the resistant cells. Intracellular erlotinib concentrations, determined by liquid chromatography-tandem mass spectrometry, were almost the same in all three cell lines. Immunoprecipitation with EGFR antibody followed by detection with phosphotyrosine antibody revealed that erlotinib effectively reduced EGFR phosphorylation in both parental cells and resistant cells. Erlotinib induced mutated in multiple advanced cancers 1/phosphatase and tensin homologue (MMAC1/PTEN) and suppressed phosphorylated Akt (Ser(473)) but not in the erlotinib-resistant cells. Overexpression of MMAC1/PTEN by transfection with Ad.MMAC1/PTEN or by pharmacologic suppression of Akt activity restored erlotinib sensitivity in both resistant pools. Further, transfection of parental A-431 cells with constitutively active Akt was sufficient to cause resistance to erlotinib. We propose that acquired erlotinib resistance associated with MMAC1/PTEN down-regulation and Akt activation could be overcome by inhibitors of signaling through the phosphatidylinositol 3-kinase pathway.