Diacylglycerol (DAG) acts as an allosteric activator of protein kinase C (PKC) and is converted to phosphatidic acid by DAG kinase (DGK). Therefore, DGK is thought to be a negative regulator of PKC activation. Here we show molecular mechanisms of functional coupling of the two kinases. gammaPKC directly associated with DGKgamma through its accessory domain (AD), depending on Ca2+ as well as phosphatidylserine/diolein in vitro. Mass spectrometric analysis and mutation studies revealed that gammaPKC phosphorylated Ser-776 and Ser-779 in the AD of DGKgamma. The phosphorylation by gammaPKC resulted in activation of DGKgamma because a DGKgamma mutant in which Ser-776 and Ser-779 were substituted with glutamic acid to mimic phosphorylation exhibited significantly higher activity compared with wild type DGKgamma and an unphosphorylatable DGKgamma mutant. Importantly, the interaction of the two kinases and the phosphorylation of DGKgamma by gammaPKC could be confirmed in vivo, and overexpression of the AD of DGKgamma inhibited re-translocation of gammaPKC. These results demonstrate that localization and activation of the functionally correlated kinases, gammaPKC and DGKgamma, are spatio-temporally orchestrated by their direct association and phosphorylation, contributing to subtype-specific regulation of DGKgamma and DAG signaling.