PKC eta is expressed predominantly in the epithelial tissues; however, its role in the regulation of epithelial tight junctions (TJs) is unknown. We present evidence that PKC eta phosphorylates occludin on threonine residues (T403 and T404) and plays a crucial role in the assembly and/or maintenance of TJs in Caco-2 and MDCK cell monolayers. Inhibition of PKC eta by specific pseudo substrate inhibitor or knockdown of PKC eta by specific shRNA disrupts the junctional distribution of occludin and ZO-1 and compromises the epithelial barrier function. Expression of dominant negative, PKC eta(K394R) disrupts the TJ and barrier function, whereas wild-type PKC eta and constitutively active PKC eta(A161E) enhance the TJ integrity. Inhibition and knockdown of PKC eta or expression of PKC eta(K394R) induce dephosphorylation of occludin on threonine residues, whereas active PKC eta elevates occludin phosphorylation. PKC eta directly interacts with the C-terminal domain of occludin and phosphorylates it on highly conserved T403 and T404. T403/404A mutations result in the loss of occludin's ability to localize at the TJs, whereas T403/404D mutations attenuates the PKC eta inhibitor-mediated redistribution of occludin from the intercellular junctions. These results reveal an important mechanism of epithelial TJ regulation by PKC eta.