We showed earlier that over-expression of protein kinase C (PKC) epsilon induces neurite outgrowth. The effect is mediated by a region (PKCepsilonPSC1V3) encompassing the pseudosubstrate, the two C1 domains and part of the V3 region, and is independent of the catalytic activity of the enzyme. In this region, residues immediately N-terminal of the C1b domain are crucial for neurite outgrowth. However, in this study we show that the PKCepsilon C1b domain itself is necessary for neurite induction, since a mutant in which the PKCepsilon C1b domain has been replaced with the C1b domain from PKCalpha, PKCepsilonPSC1a(alphaC1b)V3 lacks neurite-inducing capacity. The molecular basis for the importance of the PKCepsilon C1b domain was investigated by mutation studies of the PKCalpha C1b domain. Point mutations were done in the PKCalpha C1b domain of the PKCepsilonPSC1a(alphaC1b)V3 construct, in which the PKCalpha residues were mutated into the corresponding residues in PKCepsilon. This highlighted residues in the C-terminal part of the primary sequence of the C1b domain, located in the base of the C1b domain, as important for neurite outgrowth. The mutations S48P, D32K and L49N all influenced neurite induction positively. Furthermore, the mutation of L49N alone was sufficient to make PKCepsilonPSC1a(alphaC1b)V3 neuritogenic in phorbol ester-stimulated cells, and mutation of this residue in full-length PKCepsilon into the corresponding residue in PKCalpha, N291L reduced the neurite-inducing effect of PKCepsilon. In conclusion, we have identified residues in the PKCepsilon C1b domain, in particular Asn49, that are essential for neurite outgrowth.