The fidelity of intracellular signaling hinges on the organization of dynamic activity architectures. Spatial compartmentation was first proposed over 30 years ago to explain how diverse G protein-coupled receptors achieve specificity despite converging on a ubiquitous messenger, cyclic adenosine monophosphate (cAMP). However, the mechanisms responsible for spatially constraining this diffusible messenger remain elusive. Here, we reveal that the type I regulatory subunit of cAMP-dependent protein kinase (PKA), RIα, undergoes liquid-liquid phase separation (LLPS) as a function of cAMP signaling to form biomolecular condensates enriched in cAMP and PKA activity, critical for effective cAMP compartmentation. We further show that a PKA fusion oncoprotein associated with an atypical liver cancer potently blocks RIα LLPS and induces aberrant cAMP signaling. Loss of RIα LLPS in normal cells increases cell proliferation and induces cell transformation. Our work reveals LLPS as a principal organizer of signaling compartments and highlights the pathological consequences of dysregulating this activity architecture. Display omitted •PKA RIα undergoes liquid-liquid phase separation in response to cAMP dynamics•RIα condensates dynamically sequester cAMP and retain high PKA activity•RIα phase separation is necessary for effective cAMP compartmentation•A PKA oncoprotein disrupts RIα bodies, leading to aberrant signaling and growth cAMP-responsive condensate formation by PKA’s RIα subunit controls local signaling, and disruption of phase separation in this context contributes to tumorigenesis.