Neurofibrillary tangles (NFTs), consisting of abnormally hyperphosphorylated tau, are implicated in the pathogenesis of several neurodegenerative diseases including Alzheimer's disease (AD). The molecular mechanisms underlying the regulation of tau phosphorylation are largely unknown. While the PI3K/Akt pathway has been shown to regulate multiple cellular events pertinent to AD pathogenesis, potential functions of tumor suppressor phosphatase and tensin homologue deleted on chromosome 10 (PTEN) in AD pathogenesis have not been explored. Here, we examine the effects of PTEN on tau phosphorylation, its microtubule association and formation of aggregates, and consequentially neuronal morphology. In cultured cells, overexpression of wild-type (WT) PTEN alters tau phosphorylation at several sites, increases tau-microtubule association and decreases formation of tau aggregates. In addition, the phosphatase-null PTEN increases tau aggregation and impairs tau binding to microtubule and neurite outgrowth of neurons expressing the mutant PTEN. We also found a significant loss of PTEN in AD patient brains correlated with a dramatically increased concentration of phospho-tau at Ser-214 in NFTs. Together, our results demonstrate that PTEN regulates tau phosphorylation, binding to microtubules and formation of aggregates and neurite outgrowth. These findings suggest a link between malfunction of PTEN and tauopathy, and imply PTEN as a therapeutic target for tauopathy.