The PTEN (phosphatase and tensin homologue deleted on chromosome 10) tumour-suppressor protein is a phosphoinositide 3-phosphatase which antagonizes phosphoiositide 3-kinase-dependent signalling by dephosphorylating PtdIns(3,4,5)P-3. Most tumour-derived point mutations of PTEN induce a loss of function, which correlates with profoundly reduced catalytic activity. However, here we characterize a point mutation at the N-terminus of PTEN, K13E from a human glioblastoma, which displayed wild-type activity when assayed in vitro. This mutation occurs within a conserved polybasic motif, a putative Ptdlns(4,5)P,binding site that may participate in membrane targeting of PTEN. We found that catalytic activity against lipid substrates and vesicle binding of wild-type PTEN, but not of PTEN K13E, were greatly stimulated by anionic lipids, especially Ptdlns(4,5)P-2. The K13E mutation also greatly reduces the efficiency with which anionic lipids inhibit PTEN activity against Soluble substrates, supporting the hypothesis that non-catalytic membrane binding orientates the active site to favour lipid substrates. Significantly, in contrast to the wild-type enzyme, PTEN K13E failed either to prevent protein kinase B/Akt phosphorylation, or inhibit cell proliferation when expressed in PTEN-null U87MG cells. The cellular functioning of K13E PTEN was recovered by targeting to the plasma membrane through inclusion of a myristoylation site. Our results establish a requirement for the conserved N-terminal motif of PTEN for correct membrane orientation, cellular activity and tumour-suppressor function.