Phosphatase found in regenerating liver (PRL)-1, PRL-2, and PRL-3 [also known as PTP4A1, PTP4A2, and PTP4A3, respectively] constitute a unique family of putative protein tyrosine phosphatases (PTPs) modified by farnesylation. PRL-3 is amplified and its message is up-regulated in colorectal carcinoma metastases. Its ectopic expression promotes invasive and metastatic properties, supporting a causal link between PRL-3 and late-stage cancer development. However, neither PRL phosphatase substrates nor their signaling pathways have been defined. To address possible mechanisms for the biological activity of PRL-3, we sought to identify its downstream targets, reasoning that regulators of motility and invasion, such as the Rho family of small GTPases, might be logical candidates. We found that levels of active RhoA and RhoC were increased 4- to 7-fold in SW480 colorectal carcinoma cells expressing exogenous PRL-1 and PRL-3, and that PRL-mediated motility and Matrigel invasion were blocked by pharmacologic inhibition of Rho kinase (ROCK), a key Rho effector. In contrast, the activity of Rac was reduced by PRL PTPs, whereas Cdc42 activity was unaffected. PRL-3 stimulated transcription driven by the serum response element in a Rho-dependent manner. We also confirmed that the ability of PRL PTPs to induce invasion and motility is dependent on farnesylation. Catalytic PRL-3 mutants (C104A or D72A) were impaired in PRL-3-induced invasion and Rho activation, indicating that these properties require phosphatase activity. We conclude that PRL PTPs stimulate Rho signaling pathways to promote motility and invasion. Characterization of PRL activity and regulatory pathways should enhance efforts to understand and interfere with PRL-mediated events in invasion and metastasis.