The PTEN (phosphatase and tensin homologue deleted on chromosome 10) tumour-suppressor protein is a phosphoinositide 3-phosphatase which antagonizes phosphoinositide 3-kinase-dependent signalling by dephosphorylating PtdIns(3,4,5)P3. Most tumour-derived point mutations of PTEN induce a loss of function, which correlates with profoundly reduced catalytic activity. However, here we characterize a point mutation at the N-terminus of PTEN, K13E from a human glioblastoma, which displayed wild-type activity when assayed in vitro. This mutation occurs within a conserved polybasic motif, a putative PtdIns(4,5)P2-binding site that may participate in membrane targeting of PTEN. We found that catalytic activity against lipid substrates and vesicle binding of wild-type PTEN, but not of PTEN K13E, were greatly stimulated by anionic lipids, especially PtdIns(4,5)P2. The K13E mutation also greatly reduces the efficiency with which anionic lipids inhibit PTEN activity against soluble substrates, supporting the hypothesis that non-catalytic membrane binding orientates the active site to favour lipid substrates. Significantly, in contrast to the wild-type enzyme, PTEN K13E failed either to prevent protein kinase B/Akt phosphorylation, or inhibit cell proliferation when expressed in PTEN-null U87MG cells. The cellular functioning of K13E PTEN was recovered by targeting to the plasma membrane through inclusion of a myristoylation site. Our results establish a requirement for the conserved N-terminal motif of PTEN for correct membrane orientation, cellular activity and tumour-suppressor function.