PTEN/MMAC1 is a tumor suppressor gene located on chromosome 10q23. Inherited PTEN/MMAC1 mutations are associated with a cancer predisposition syndrome known as Cowden's disease. Somatic mutation of PTEN has been found in a number of malignancies, including glioblastoma, melanoma, and carcinoma of the prostate and endometrium. The protein product (PTEN) encodes a dual-specificity protein phosphatase and in addition can dephosphorylate certain lipid substrates. Herein, we show that PTEN protein induces a G1 block when reconstituted in PTEN-null cells. A PTEN mutant associated with Cowden's disease (PTEN;G129E) has protein phosphatase activity yet is defective in dephosphorylating inositol 1,3,4,5-tetrakisphosphate in vitro and fails to arrest cells in G1. These data suggest a link between induction of a cell-cycle block by PTEN and its ability to dephosphorylate, in vivo, phosphatidylinositol 3,4,5-trisphosphate. In keeping with this notion, PTEN can inhibit the phosphatidylinositol 3,4, 5-trisphosphate-dependent Akt kinase, a downstream target of phosphatidylinositol 3-kinase, and constitutively active, but not wild-type, Akt overrides a PTEN G1 arrest. Finally, tumor cells lacking PTEN contain high levels of activated Akt, suggesting that PTEN is necessary for the appropriate regulation of the phosphatidylinositol 3-kinase/Akt pathway.