PTEN is a tumor suppressor protein that functions, in large part, by dephosphorylating the lipid second messenger phosphatidylinositol 3,4,5-trisphosphate and by doing so antagonizing the action of phosphoinositide 3-kinase. PTEN structural domains include an N-terminal phosphatase domain, a lipid-binding C2 domain, and a 50-amino acid C-terminal tail that contains a PDZ binding sequence. We showed previously that phosphorylation of the PTEN tail negatively regulates PTEN activity. We now show that phosphorylated PTEN exists in a monomeric "closed" conformation and has low affinity for PDZ domain-containing proteins. Conversely, when unphosphorylated, PTEN is in an "open" conformation, is recruited into a high molecular weight complex (PTEN-associated complex), and strongly interacts with PDZ-containing proteins such as MAGI-2. As a consequence, when compared with wild-type PTEN, the phosphorylation-deficient mutant form of PTEN strongly cooperates with MAGI-2 to block Akt activation. These results indicate that phosphorylation of the PTEN tail causes a conformational change that results in the masking of the PDZ binding domain. Consequently, the ability of PTEN to bind to PDZ domain-containing proteins is reduced dramatically. These data suggest that phosphorylation of the PTEN tail suppresses the activity of PTEN by controlling the recruitment of PTEN into the PTEN-associated complex.