BACKGROUND: We recently demonstrated that deletion of thrombomodulin gene from endothelial cells results in upregulation of proinflammatory phenotype. In this study, we investigated the molecular basis for the altered phenotype in thrombomodulin-deficient (TM −/− ) cells. METHODS: Different constructs containing deletions or mutations in the cytoplasmic domain of thrombomodulin were prepared and introduced to TM −/− cells. The phenotype of cells expressing different derivatives of thrombomodulin and tissue samples of thrombomodulin-knockout mice were analyzed for expression of distinct regulatory genes in established signaling assays. RESULTS: The phosphatase and tensin homolog were phosphorylated and its recruitment to the plasma membrane was impaired in TM −/− cells, leading to hyperactivation of AKT (protein kinase B) and phosphorylation-dependent nuclear exclusion of the transcription factor, forkhead box O1. The proliferative/migratory properties of TM −/− cells were enhanced, and cells exhibited hypersensitivity to stimulation by angiopoietin 1 and vascular endothelial growth factor. Reexpression of wild-type thrombomodulin in TM −/− cells normalized the cellular phenotype; however, thrombomodulin lacking its cytoplasmic domain failed to restore the normal phenotype in TM −/− cells. Increased basal permeability and loss of VE-cadherin were restored to normal levels by reexpression of wild-type thrombomodulin but not by a thrombomodulin construct lacking its cytoplasmic domain. A thrombomodulin cytoplasmic domain deletion mutant containing 3-membrane-proximal Arg-Lys-Lys residues restored the barrier-permeability function of TM −/− cells. Enhanced phosphatase and tensin homolog phosphorylation and activation of AKT and mTORC1 (mammalian target of rapamycin complex 1) were also observed in the liver of thrombomodulin-KO mice. CONCLUSIONS: These results suggest that the cytoplasmic domain of thrombomodulin interacts with the actin cytoskeleton and plays a crucial role in regulation of phosphatase and tensin homolog/AKT signaling in endothelial cells.