ITK-SYK, a novel fusion tyrosine kinase (FTK) resulting from a recurrent t(5;9)(q33;q22), was recently identified in a poorly understood subset of peripheral T-cell lymphomas. However, the biochemical and functional properties of ITK-SYK are unknown. Here we demonstrate that ITK-SYK is a catalytically active tyrosine kinase that is sensitive to an established inhibitor of SYK. The expression of ITK-SYK, but not SYK, transformed NIH3T3 cells, inducing loss of contact inhibition and formation of anchorage-independent colonies in soft agar, in a kinase activity-dependent manner. ITK-SYK is unusual among FTKs in having an N-terminal phosphatidylinositol 3,4,5-trisphosphate-binding pleckstrin homology (PH) domain. Introduction of a well characterized loss-of-function mutation (R29C) into the PH domain of ITK-SYK inhibited its phosphorylation, markedly reduced its catalytic activity, and abrogated its ability to activate the ERK signaling pathway and to transform NIH3T3 cells. Although ITK-SYK was membrane-associated, ITK-SYK-R29C was not. However, each of these properties could be recovered by retargeting ITK-SYK-R29C back to the plasma membrane by the addition of an N-terminal myristylation sequence. Consistent with a model in which ITK-SYK requires PH domain-mediated binding to phosphatidylinositol 3,4,5-trisphosphate generated by phosphatidylinositol 3-kinase (PI3K), ITK-SYK activity was reduced by pharmacological inhibition of PI3K and increased by co-expression with a constitutively active form of PI3K. Together, these findings identify ITK-SYK as an active, transforming FTK dependent upon PH domain-mediated membrane localization, identify a novel mechanism for activation of an oncogenic FTK, and suggest ITK-SYK as a rational therapeutic target for t(5;9)(q33;q22)-positive lymphomas.