The human PTEN/MMAC1/TEP1 (PTEN) tumor suppressor gene encodes a phosphatase with specificity towards the D3 phosphate of phosphatidylinositides. PTEN mutations have been reported in the endometrioid type of uterine tumors which are associated with frequent activations of the Ras oncogenes. In this study, we report the ability of PTEN to potently inhibit H-Ras induced morphological transformation and anchorage-independent growth in NIH3T3 cells. This novel activity of PTEN was correlated more with its ability to suppress the phosphatidylinositol 3-kinase (PI3-K)-dependent signaling cascade, but not the mitogen-activated protein kinase (MAPK) pathway. To define the minimal region in PTEN protein that is responsible for this anti-oncogenic activity, a panel of carboxyl-terminal truncation mutants was generated. While deletions of 4 and 33 amino acids do not have marked effects, removal of up to 68 amino acids drastically reduced the ability of PTEN to inhibit Ras transformation. The propensity of these mutants to suppress Ras transformation is correlated with their relative ability to dephosphorylate inositol (1,3,4,5)-tetrakisphosphate in vitro, and to suppress Akt kinase activity in cultured cells. In addition, we have evidence to suggest that the C-terminal region of PTEN contributes to the stability of the encoded gene product.