Lung cancers caused by activating mutations in the epidermal growth factor receptor (EGFR) are initially responsive to small molecule tyrosine kinase inhibitors (TKIs), but the efficacy of these agents is often limited because of the emergence of drug resistance conferred by a second mutation, T790M. Threonine 790 is the “gatekeeper” residue, an important determinant of inhibitor specificity in the ATP binding pocket. The T790M mutation has been thought to cause resistance by sterically blocking binding of TKIs such as gefitinib and erlotinib, but this explanation is difficult to reconcile with the fact that it remains sensitive to structurally similar irreversible inhibitors. Here, we show by using a direct binding assay that T790M mutants retain low-nanomolar affinity for gefitinib. Furthermore, we show that the T790M mutation activates WT EGFR and that introduction of the T790M mutation increases the ATP affinity of the oncogenic L858R mutant by more than an order of magnitude. The increased ATP affinity is the primary mechanism by which the T790M mutation confers drug resistance. Crystallographic analysis of the T790M mutant shows how it can adapt to accommodate tight binding of diverse inhibitors, including the irreversible inhibitor HKI-272, and also suggests a structural mechanism for catalytic activation. We conclude that the T790M mutation is a “generic” resistance mutation that will reduce the potency of any ATP-competitive kinase inhibitor and that irreversible inhibitors overcome this resistance simply through covalent binding, not as a result of an alternative binding mode.