The inhibition of GSK3 is required for the stimulation of glycogen and protein synthesis by insulin and the specification of cell fate during development. Here, we demonstrate that the insulin-induced inhibition of GSK3 and its unique substrate specificity are explained by the existence of a phosphate binding site in which Arg-96 is critical. Thus, mutation of Arg-96 abolishes the phosphorylation of "primed" glycogen synthase as well as inhibition by PKB-mediated phosphorylation of Ser-9. Hence, the phosphorylated N terminus acts as a pseudosubstrate, occupying the same phosphate binding site used by primed substrates. Significantly, this mutation does not affect phosphorylation of "nonprimed" substrates in the Wnt-signaling pathway (Axin and beta-catenin), suggesting new approaches to design more selective GSK3 inhibitors for the treatment of diabetes.