Nuclear FOXO proteins act as tumor suppressors by transcriptionally activating genes involved in apoptosis and cell cycle arrest, and these anticancer functions are inhibited by AKT‐induced phosphorylation and cytoplasmic sequestration of FOXOs. We found that, after AKT‐mediated phosphorylation at serine 319, FOXO1 binds to IQGAP1, a hub for activation of the MAPK pathway, and impedes IQGAP1‐dependent phosphorylation of ERK1/2 (pERK1/2). Conversely, decreased FOXO1 expression increases pERK1/2 in cancer cell lines and correlates with increased pERK1/2 levels in patient specimens and disease progression. Treatment of cancer cells with PI3K inhibitors or taxane causes FOXO1 localization in the nucleus, increased expression of pERK1/2, and drug resistance. These effects are reversed by administering a small FOXO1‐derived phospho‐mimicking peptide inhibitor in vitro and in mice. Our results show a tumor suppressor role of AKT‐phosphorylated FOXO1 in the cytoplasm and suggest that this function of FOXO1 can be harnessed to overcome chemoresistance in cancer.