Phosphatase and tensin homolog (PTEN), which negatively regulates tumorigenic phosphatidylinositol (3,4,5)-trisphosphate (PIP3) signaling, is a commonly mutated tumor suppressor. The majority of cancer-associated PTEN mutations block its essential PIP3 phosphatase activity. However, there is a group of clinically identified PTEN mutations that maintain enzymatic activity, and it is unknown how these mutations contribute to tumor pathogenesis. Here, we show that these enzymatically competent PTEN mutants fail to translocate to the plasma membrane where PTEN converts PIP3 to PI(4,5)P2. Artificial membrane tethering of the PTEN mutants effectively restores tumor suppressor activity and represses excess PIP3 signaling in cells. Thus, our findings reveal a novel mechanism of tumorigenic PTEN deficiency.