The PTEN gene (also called MMAC1 and TEP1) at chromosome 10q23 is mutated in a variety of predominantly late-stage tumors and has been shown to suppress glioma cell growth in vitro and in vivo. Here we sought to determine the mechanism by which PTEN mediates growth inhibition. Using the mutant PTEN glioma cell line, U87MG, as a transfection recipient for a series of PTEN alleles, we provide direct evidence that this capacity requires phosphatase activity. Mutations mapping upstream, within, and downstream of the catalytic domain ablated activity toward a 3′ phosphorylated phosphoinositide substrate of PTEN, whereas alleles with mutations flanking the catalytic domain retained activity toward the acidic protein polymer substrate, Glu4Tyr1. Thus, catalytic activity toward phosphoinositide substrates was required for growth suppression, whereas activity toward the protein substrate was dispensable for growth suppression. Finally, we used apoptotic and cell proliferation analyses to show that PTEN-mediated growth inhibition under reduced serum conditions was due to a G1 cell cycle block rather than to an induction of apoptosis.