The A126 cell line, a derivative of PC12, is defective in cAMP-induced transcription and does not differentiate in the presence of cAMP. In these cells overexpression of a cAMP-dependent protein kinase (PKA) anchor protein, AKAP75, and of the PKA catalytic subunit substantially increased the fraction of PKAIII bound to the membrane, stimulated the transcription of cAMP-induced genes, and induced terminal differentiation. Conversely, wild type PC12 cells expressing a derivative of the AKAP75 protein, AKAP45, which binds the PKA regulatory subunits RII, but fails to locate them to the membranes, induced translocation of PKAII to the cytosol, These cells did not efficiently accumulate PRA catalytic subunit in the nuclei when stimulated with CAMP, did not transcribe cAMP-induced genes, and failed to differentiate when exposed to cAMP. These data indicate that membrane-bound PKA positively controls the transcription of cAMP-induced genes and differentiation in PC12 cells.