The tumor suppressor gene PTEN is frequently mutated in diverse human cancers and in autosomal dominant cancer predisposition disorders. Recent studies have shown that the lipid phosphatase activity of PTEN is critical for its tumor suppressor function and that PTEN negatively regulates the phosphatidylinositol 3'-kinase-protein kinase B pathway. Although more than half of PTEN mutations result in protein truncation, a significant fraction of PTEN mutations are missense mutations. To examine whether tumor-derived and germ-line-derived missense mutations inactivate PTEN lipid phosphatase function, we constructed 42 distinct types of PTEN missense mutations and expressed them in Escherichia coli. The purified (His)6-tagged PTEN proteins were tested for their ability to dephosphorylate inositol 1,3,4,5-tetrakisphosphate and phosphatidylinositol 3,4,5-triphosphate. In addition, we examined the effect of mutant PTENs on the ability of PTEN to bind to the phospholipid membrane. The results revealed that the majority of PTEN missense mutations [38 of 42 (90%)] eliminated or reduced phosphatase activity and that all of the mutations examined had no effect on the membrane binding activity of PTEN. Our study indicated that phosphoinositide phosphatase activity is important for the tumor suppressor function of PTEN and that there may be other mechanisms of PTEN inactivation that are not monitored by in vitro phosphatase assay and in vitro membrane binding assay.