The PTEN tumour suppressor is a lipid and protein phosphatase that inhibits phosphoinositide 3-kinase (PI3K)-dependent signalling by dephosphorylating phosphatidylinositol 3,4,5-trisphosphate (PtdInsP(3)). Here, we discuss the concept of PTEN as an 'interfacial enzyme', which exists in a high activity state when bound transiently at membrane surfaces containing its substrate and other acidic lipids, such as PtdIns(4,5)P(2) and phosphatidylserine (PtdSer). This mechanism ensures that PTEN functions in a spatially restricted manner, and may explain its involvement in forming the gradients of PtdInsP(3), which are necessary for generating and/or sustaining cell polarity during motility, in developing neurons and in epithelial tissues. Coordinating PTEN activity with alternative mechanisms of PtdInsP(3) metabolism, by the tightly regulated SHIP 5-phoshatases, synthesizing the independent second messenger PtdIns(3,4)P(2), may also be important for cellular polarization in some cell types. Superimposed on this interfacial mechanism are additional post-translational regulatory processes, which generally act to reduce PTEN activity. Oxidation of the active site cysteine residue by reactive oxygen species and phosphorylation of serine/threonine residues at sites in the C-terminus of the protein inhibit PTEN. These phosphorylation sites also appear to play a role in regulating both stability and localization of PTEN, as does ubiquitination of PTEN. Because genetic studies in mice show that the level of expression of PTEN in an organism profoundly influences tumour susceptibility, factors that regulate PTEN, localization, activity and turnover should be important in understanding its biological functions as a tumour suppressor.