We show in this study that PTEN regulates p53 protein levels and transcriptional activity through both phosphatase-dependent and -independent mechanisms. The onset of tumor development in p53^+/−;Pten^+/− mice is similar to p53^−/− animals, and p53 protein levels are dramatically reduced in Pten^−/− cells and tissues. Reintroducing wild-type or phosphatase-dead PTEN mutants leads to a significant increase in p53 stability. PTEN also physically associates with endogenous p53. Finally, PTEN regulates the transcriptional activity of p53 by modulating its DNA binding activity. This study provides a novel mechanism by which the loss of PTEN can functionally control "two" hits in the course of tumor development by concurrently modulating p53 activity.