Biochemical experiments in mammalian cells have linked Src family kinase activity to the insulin signaling pathway. To explore the physiological link between Src and a central insulin pathway effector, we investigated the effect of different Src signaling levels on the Drosophila transcription factor dFOXO in vivo. Ectopic activation of Src42A in the starved larval fatbody was sufficient to drive dFOXO out of the nucleus. When Src signaling levels were lowered by means of loss-of-function mutations or pharmacological inhibition, dFOXO localization was shifted to the nucleus in growing animals and transcription of the dFOXO target genes d4E-BP and dInR was induced. dFOXO loss-of-function mutations rescued the induction of dFOXO target gene expression and the body size reduction of Src42A mutant larvae, establishing dFOXO as a critical downstream effector of Src signaling. Furthermore, we provide evidence that the regulation of FOXO transcription factors by Src is evolutionarily conserved in mammalian cells.