Protein tyrosine phosphatases (PTPs) have long been thought to play a role in tumor suppression due to their ability to antagonize the growth promoting protein tyrosine kinases. Recently, a candidate tumor suppressor from 10q23, termed P-TEN, was isolated, and sequence homology was demonstrated with members of the PTP family, as well as the cytoskeletal protein tensin. Here we show that recombinant P-TEN dephosphorylated protein and peptide substrates phosphorylated on serine, threonine, and tyrosine residues, indicating that P-TEN is a dual-specificity phosphatase. In addition, P-TEN exhibited a high degree of substrate specificity, showing selectivity for extremely acidic substrates in vitro. Furthermore, we demonstrate that mutations in P-TEN, identified from primary tumors, tumor cells lines, and a patient with Bannayan-Zonana syndrome, resulted in the ablation of phosphatase activity, demonstrating that enzymatic activity of P-TEN is necessary for its ability to function as a tumor suppressor.