AGC kinases are mediators of signalling responses stimulated by agonists and are activated following phosphorylation at their T-loop residue by the 3-phosphoinositide-dependent protein kinase-1 (PDK1). Agonists stimulate the activation of the AGC kinases p70 ribosomal S6 kinase (S6K), p90 ribosomal S6 kinase (RSK) and serum and glucocorticoid-induced protein kinase (SGK), by inducing the phosphorylation of these enzymes at a non-catalytic regulatory site termed the hydrophobic motif. This creates a high-affinity docking site enabling PDK1 to bind and phosphorylate the T-loop of these enzymes. The site that interacts with these substrates is located on the small lobe of the catalytic domain of PDK1 and is composed of a hydrophobic groove next to a basic phosphate groove. The disruption of the hydrophobic groove ablates activation of S6K, RSK and SGK, but the role of the phosphate groove in regulating the function of PDK1 has not been explored in vivo. We generated knockin ES cells, in which both copies of the gene encoding PDK1 were altered to express a form of PDK1 that retains catalytic activity and integrity of the hydrophobic groove, but in which the phosphate groove was disrupted. The knockin ES cells were viable, mutant PDK1 was expressed at normal levels and IGF1 induced activation of protein kinase B (PKB/Akt), which is a PDK1 substrate that does not require hydrophobic motif phosphorylation to be activated. In the phosphate-groove-knockin ES cells, the activation of S6K, RSK and SGK by agonists, although markedly impaired, was not abolished. PDK1 also phosphorylates the T-loop of protein kinase C (PKC) isoforms, which stabilizes these enzymes. However, in contrast to S6K, RSK and SGK, hydrophobic motif phosphorylation of these enzymes is not thought to control their activation by PDK1. Consistent with this notion, we employed appropriate PDK1-knockin ES cells to demonstrate that the hydrophobic groove of PDK1, but not the phosphate groove, is required for the stabilization of PKC isoforms. These findings provide genetic evidence that the phosphate groove of PDK1 is required for maximal activation of isoforms of S6K, SGK and RSK, but not PKC. We also found that no live births of homozygous phosphate-groove-knockin mice are observed, indicating a key role for this regulatory motif in normal development. The knockin embryos develop to a greater extent than PDK1-knockout and hydrophobic-groove-knockin embryos, which died between E9.5-E11.5. The knockin embryos are observed until E19.5 and displayed general growth retardation and craniofacial developmental defects.