The induction of yeast Saccharomyces cerevisiae gene PHO5 expression is mediated by transcriptional factors PHO2 and PHO4. PHO4 protein has been reported to be phosphorylated and inactivated by a cyclin-CDK (cyclin-dependent kinase) complex, PHO80-PHO85. We report here that PHO2 can also be phosphorylated. A Ser-230 to Ala mutation in the consensus sequence (SPIK) recognized by cdc2/CDC28-related kinase in PHO2 protein led to complete loss of its ability to activate the transcription of PHO5 gene. Further investigation showed that the Pro-231 to Ser mutation inactivated PHO2 protein as well, whereas the Ser-230 to Asp mutation did not affect PHO2 activity. Since the PHO2 Asp-230 mutant mimics Ser-230-phosphorylated PHO2, we postulate that only phosphorylated PHO2 protein could activate the transcription of PHO5 gene. Two hybrid assays showed that yeast CDC28 could interact with PHO2. CDC28 immunoprecipitate derived from the YPH499 strain grown under low phosphate conditions phosphorylated GST-PHO2 in vitro. A phosphate switch regulates the transcriptional activation activity of PHO2, and mutations of the (SPIK) site affect the transcriptional activation activity of PHO2 and the interaction between PHO2 and PHO4. BIAcore(R) analysis indicated that the negative charge in residue 230 of PHO2 was sufficient to help PHO2 interact with PHO4 in vitro.