The PTEN (phosphatase and tensin homologue) tumor suppressor protein contains a single catalytic domain with both lipid and protein phosphatase activities. The remaining C-terminal half of the PTEN protein plays a role in its stability and is mutated in many clinical cancer samples. Here, we report that the PTEN C-terminal domain physically interacts with the forkhead-associated domain of the oncogenic MSP58 protein and that this interaction requires PTEN Thr-366. We further show that while MSP58 transforms Pten؊͞؊ mouse embryo fibroblasts (MEFs), concurrent introduction of wild-type PTEN causes a dramatic reduction in the number of MSP58-induced transformed foci. This PTEN-mediated inhibition of cellular transformation requires physical interaction as evidenced by the failure of PTEN(T366A) point mutation (residing within the MSP58 interaction domain) to suppress MSP-58-driven transformation. These observations, together with the capacity of catalytically inactive PTEN mutant (G129R) to suppress MSP58 oncogenicity, support the view that the C-terminal region of PTEN directly provides a previously uncharacterized biological function in its ability to regulate cellular transformation. P TEN (phosphatase and tensin homology, deleted on chromosome ten) is a tumor suppressor gene that is frequently somatically deleted or mutated in a variety of human cancers including those of the brain, endometrium, prostate, and lung (1, 2). Germ-line mutations of PTEN are also the cause of Cowden's disease, an autosomal dominant hamartoma syndrome with increased risk for the development of tumors in a variety of tissues (1, 2).PTEN dephosphorylates the 3Ј position of phosphatidylinositol 3,4,5-trisphosphate [PI(3,4,5)P 3 ] and phosphatidylinositol 3,4-bisphosphate [PI(3,4)P 2 ] and tyrosine-phosphorylated FAK and Shc. These activities inhibit cell growth and cell migration, respectively (3). The PTEN protein consists of an N-terminal phosphatase domain and a C-terminal domain, which is subdivided into C2, phosphorylation, and PDZ (PSD-95, disc-large, Zonula Occludens-1) binding domains (1). Sequencing of the PTEN gene in spontaneous tumors, and those arising in genetically predisposed individuals, has shown that Ϸ20% of all known PTEN mutations, including a number of frameshift, nonsense, and missense mutations, target the C-terminal region (2). These data suggest that this region of the PTEN protein may have biological functions distinct from those mediated by its catalytic domain.The C-terminal domain is phosphorylated in vivo, and this phosphorylation regulates PTEN stability and activity (4). However, the physiologically relevant function of PTEN phosphorylation, other than control of protein stability, continues to be an area of active investigation. Within the C-terminal region, the C2 domain has been shown to regulate the activity and stability of the PTEN protein by binding to the plasma membrane and contributing to the proper orientation of its phosphatase domain (5). The C2 domain can also regulate cell migration, indep...