In the present study, we examined regulation of activated focal adhesion kinase localization in focal adhesions. By using focal adhesion kinase fused to an inert transmembrane anchor, we found that the focal contact targeting region within focal adhesion kinase was preserved in the membrane-targeted fusion protein. However, upon tyrosine phosphorylation, full-length focal adhesion kinase became excluded from focal adhesions. This negative regulation of localization could be abolished by mutating key amino acid residues of focal adhesion kinase shown previously to be involved in adhesion-mediated signal transduction. Hyper-phosphorylation of endogenous focal adhesion kinase induced by pervanadate resulted in a similar reduction of localization at focal adhesions. We also show here that Src family kinases are essential for the phosphorylation-dependent exclusion of focal adhesion kinase from focal adhesions. We propose here a molecular model for the tyrosine phosphorylation-dependent regulation of focal adhesion kinase organization involving Src kinases and an inhibitory phosphorylation of the C-terminal (Tyr-925) tyrosine residue.