Phosphatidic acid (PA) is a critical mediator of mitogenic activation of mammalian target of rapamycin complex 1 (mTORC1) signaling, a master regulator of mammalian cell growth and proliferation. The mechanism by which PA activates mTORC1 signaling has remained unknown. Here, we report that PA selectively stimulates mTORC1 but not mTORC2 kinase activity in cells and in vitro. Furthermore, we show that PA competes with the mTORC1 inhibitor, FK506 binding protein 38 (FKBP38), for mTOR binding at a site encompassing the rapamycin-FKBP12 binding domain. This leads to PA antagonizing FKBP38 inhibition of mTORC1 kinase activity in vitro and rescuing mTORC1 signaling from FKBP38 in cells. Phospholipase D 1, a PA-generating enzyme that is an established upstream regulator of mTORC1, is found to negatively affect mTOR-FKBP38 interaction, confirming the role of endogenous PA in this regulation. Interestingly, removal of FKBP38 alone is insufficient to activate mTORC1 kinase and signaling, which require PA even when the FKBP38 level is drastically reduced by RNAi. In conclusion, we propose a dual mechanism for PA activation of mTORC1: PA displaces FKBP38 from mTOR and allosterically stimulates the catalytic activity of mTORC1.