Discovering proteins that modulate Akt signaling has become a critical task, given the oncogenic role of Akt in a wide variety of cancers. We have discovered a novel diacylglycerol signaling pathway that promotes dephosphorylation of Akt. This pathway is regulated by diacylglycerol kinase δ (DGKδ). In DGKδ-deficient cells, we found reduced Akt phosphorylation downstream of three receptor tyrosine kinases. Phosphorylation upstream of Akt was not affected. Our data indicate that PKCα, which is excessively active in DGKδ-deficient cells, promotes dephosphorylation of Akt through pleckstrin homology domain leucine-rich repeats protein phosphatase (PHLPP) 2. Depletion of either PKCα or PHLPP2 rescued Akt phosphorylation in DGKδ-deficient cells. In contrast, depletion of PHLPP1, another Akt phosphatase, failed to rescue Akt phosphorylation. Other PHLPP substrates were not affected by DGKδ deficiency, suggesting mechanisms allowing specific modulation of Akt dephosphorylation. We found that β-arrestin 1 acted as a scaffold for PHLPP2 and Akt1, providing a mechanism for specificity. Because of its ability to reduce Akt phosphorylation, we tested whether depletion of DGKδ could attenuate tumorigenic properties of cultured cells and found that DGKδ deficiency reduced cell proliferation and migration and enhanced apoptosis. We have, thus, discovered a novel pathway in which diacylglycerol signaling negatively regulates Akt activity. Our collective data indicate that DGKδ is a pertinent cancer target, and our studies could lay the groundwork for development of novel cancer therapeutics.