Akt is a serine/threonine protein kinase, a critical mediator of growth factor-induced survival in key cellular pathways. Allosteric signaling between protein intramolecular domains requires long-range communication mediated by hotspot residues, often triggered by ligand binding. Here, based on extensive 3 μs explicit solvent molecular dynamics (MD) simulations of Akt1 kinase domain in the unbound (apo) and ATP-competitive inhibitor, GDC-0068-bound states, we propose a molecular mechanism for allosteric regulation of Akt1 kinase phosphorylation by GDC-0068 binding to the ATP-binding site. MD simulations revealed that the apo Akt1 is flexible with two disengaged N- and C-lobes, equilibrated between the open and closed conformations. GDC-0068 occupancy of the ATP-binding site shifts the conformational equilibrium of Akt1 from the open conformation toward the closed conformation and stabilizes the closed state. This effect enables allosteric signal propagation from the GDC-0068 to the phosphorylated T308 (pT308) in the activation loop and restrains phosphatase access to pT308, thereby protecting the pT308 in the GDC-0068-bound Akt1. Importantly, functional hotspots involved in the allosteric communication from the GDC-0068 to the pT308 are identified. Our analysis of GDC-0068-induced allosteric protection of Akt kinase phosphorylation yields important new insights into the molecular mechanism of allosteric regulation of Akt kinase activity.