The phosphatidylinositol 3-kinase (PI3K) pathway is commonly activated in cancer. Tumors are potentially sensitive to PI3K pathway inhibitors, but reliable diagnostic tests that assess functional PI3K activity are lacking. Because PI3K pathway activity negatively regulates forkhead box-O (FOXO) transcription factor activity, FOXO target gene expression is inversely correlated with PI3K activity. A knowledge-based Bayesian computational model was developed to infer PI3K activity in cancer tissue samples from FOXO target gene mRNA levels and validated in cancer cell lines treated with PI3K inhibitors. However, applied to patient tissue samples, FOXO was often active in cancer types with expected active PI3K. SOD2 was differentially expressed between FOXO-active healthy and cancer tissue samples, indicating that cancer-associated cellular oxidative stress alternatively activated FOXO. To enable correct interpretation of active FOXO in cancer tissue, threshold levels for normal SOD2 expression in healthy tissue were defined above which FOXO activity is oxidative stress induced and below which PI3K regulated. In slow-growing luminal A breast cancer and low Gleason score prostate cancer, FOXO was active in a PI3K-regulated manner, indicating inactive PI3K. In aggressive luminal B, HER2, and basal breast cancer, FOXO was increasingly inactive or actively induced by oxidative stress, indicating PI3K activity. We provide a decision tree that facilitates functional PI3K pathway activity assessment in tissue samples from patients with cancer for therapy response prediction and prognosis.