Phosphatase of regenerating liver 3 (PRL3) is overexpressed in a variety of tumors, and high levels of PRL3 expression are associated with tumorigenesis and metastasis. Consistent with an oncogenic role for PRL3, we show that ectopic PRL3 expression promotes cell proliferation and invasion. However, little is known about the molecular basis for PRL3 function. Obtaining this knowledge is vital for understanding PRL3-mediated disease processes and for the development of novel anticancer therapies targeted to PRL3. Here we report that up-regulation of PRL3 activates the Src kinase, which initiates a number of signal pathways culminating in the phosphorylation of ERK1/2, STAT3, and p130(Cas). The activation of these pathways likely contributes to the increased cell growth and motility of PRL3 cells. We provide evidence that PRL3 induces Src activation through down-regulation of Csk, a negative regulator of Src. Importantly, Src activation and Csk down-regulation are also observed in colon cancer cells expressing a higher level of PRL3. Thus, we have revealed a biochemical mechanism for the PRL3-mediated cell invasion and proliferation in which elevated PRL3 expression causes a reduction in Csk level, leading to Src activation.