PTEN is a master regulator of multiple cellular processes and a potent tumor suppressor. Its biological function is mainly attributed to its lipid phosphatase activity that negatively regulates the PI3K-AKT signaling pathway. A fundamental and highly debated question remains whether PTEN can also function as a protein phosphatase in cells. This study demonstrates that PTEN is a protein tyrosine phosphatase that selectively dephosphorylates insulin receptor substrate-1 (IRS1), a mediator for transduction of insulin and IGF1 signaling. IGF signaling is defective in cells lacking NEDD4, a PTEN ubiquitin ligase, whereas AKT activation triggered by EGF or serum is unimpaired in these cells. Surprisingly, the defect of IGF signaling caused by NEDD4 deletion, including the of phosphorylation of IRS1, upstream of PI3K, can be rescued by PTEN ablation, suggesting PTEN may be a protein phosphatase for IRS1. The nature of PTEN as an IRS1 phosphatase is demonstrated by direct biochemical analysis and confirmed by cellular reconstitution. Further, we find that NEDD4 supports insulin-mediated glucose metabolism, and is required for the proliferation of IGF1 receptor (IGF1R)-dependent but not EGFR-dependent tumor cells. Taken together, PTEN is a protein phosphatase for IRS1, and its antagonism by the ubiquitin ligase NEDD4 promotes IGF/insulin signaling. Finally, we also identified a novel form of PTEN, which is a translational variant, termed UPP, and characterized it using biochemical and cellular studies. UPP is a fast turnover subpopulation of PTEN, and demonstrates a distinctive subcellular localization from PTEN. Co-localization imaging studies indicated that UPP is involved in endocytosis membrane trafficking and adherens junctions. UPP still functions as a lipid phosphatase for PIP3, antagonizing PI3K signaling. Furthermore, UPP was found to be a better binding partner for the PTEN protein substrate, IRS1, in cells.