The tumor suppressor phosphatase and tensin homolog deleted on chromosome 10 (PTEN) has a well-characterized lipid phosphatase activity and a poorly characterized protein phosphatase activity. We show that both activities are required for PTEN to inhibit cellular invasion and to mediate most of its largest effects on gene expression. PTEN appears to dephosphorylate itself at threonine 366, and mutation of this site makes lipid phosphatase activity sufficient for PTEN to inhibit invasion. We propose that the dominant role for PTEN's protein phosphatase activity is autodephosphorylation-mediated regulation of its lipid phosphatase activity. Because PTEN's regulation of invasion and these changes in gene expression required lipid phosphatase activity, but did not correlate with the total cellular abundance of its phosphatidylinositol 3,4,5-trisphosphate (PIP3) lipid substrate or AKT activity, we propose that localized PIP3 signaling may play a role in those PTEN-mediated processes that depend on both its protein and lipid phosphatase activities. Finally, we identified a tumor-derived PTEN mutant selectively lacking protein phosphatase activity, indicating that in some circumstances the regulation of invasion and not that of AKT can correlate with PTEN-mediated tumor suppression.