The tumour suppressor protein PTEN (phosphatase and tensin homolog deleted on chromosome 10) is a lipid phosphatase which can antagonize the phosphoinositide 3-kinase (PI 3-kinase) signalling pathway, promoting apoptosis and inhibiting cell-cycle progression and cell motility. We show that very little cellular PTEN is associated with the plasma membrane, but that artificial membrane-targeting of PTEN enhances its inhibition of signalling to protein kinase B (PKB). Evidence for potential targeting of PTEN to the membrane through PDZ domain-mediated protein-protein interactions led us to use a PTEN enzyme with a deletion of the C-terminal PDZ-binding sequence, that retains full phosphatase activity against soluble substrates, and to analyse the efficiency of this mutant in different cellular assays. The extreme C-terminal PDZ-binding sequence was dispensable for the efficient down-regulation of cellular PtdIns(3,4,5)P3 levels and a number of PI 3-kinase-dependent signalling activities, including PKB and p70S6K. However, the PDZ-binding sequence was required for the efficient inhibition of cell spreading. The data show that a PTEN mutation, similar to those found in some tumours, affects some functions of the protein but not others, and implicate the deregulation of PTEN-dependent processes other than PKB activation in the development of some tumours. Significantly, this hypothesis is supported by data showing low levels of PKB phosphorylation in a glioblastoma sample carrying a mutation in the extreme C-terminus of PTEN compared with tumours carrying phosphatase-inactivating mutations of the enzyme. Our data show that deregulation of PKB is not a universal feature of tumours carrying PTEN mutations and implicate other processes that may be deregulated in these tumours.