The tumour suppressor protein, PTEN (phosphatase and tensin homolog deleted on chromosome 10), is a phosphatase that can dephosphorylate tyrosine-containing peptides, Shc, focal adhesion kinase and phosphoinositide substrates. In cellular assays, PTEN has been shown to antagonize the PI-3K-dependent activation of protein kinase B (PKB) and to inhibit cell spreading and motility. It is currently unclear, however, whether PTEN accomplishes these effects through its lipid- or protein-phosphatase activity, although strong evidence has demonstrated the importance of the latter for tumour suppression by PTEN. By using a PTEN G129E (Gly(129)-->Glu) mutant that has lost its lipid phosphatase activity, while retaining protein phosphatase activity, we demonstrated a requirement for the lipid phosphatase activity of PTEN in the regulation of PKB activity, cell viability and membrane ruffling. We also made a small C-terminal deletion of PTEN, removing a putative PDZ (PSD95, Dlg and ZO1)-binding motif, with no detectable effect on the phosphatase activity of the protein expressed in HEK293 cells (human embryonic kidney 293 cells) assayed in vitro. Surprisingly, expression of this mutant revealed differential requirements for the C-terminus in the different functional assays. Wild-type and C-terminally deleted PTEN appeared to be equally active in down-regulating PKB activity, but this mutant enzyme had no effect on platelet-derived growth factor (PDGF)-induced membrane ruffling and was only partially active in a cell viability assay. These results stress the importance of the lipid phosphatase activity of PTEN in the regulation of several signalling pathways. They also identify a mutation, similar to mutations that occur in some human tumours, which removes the effect of PTEN on membrane ruffling but not that on PKB.