PRL-3 is a metastasis-associated phosphatase. We and others have shown that its overexpression increases cell motility and invasiveness. These phenotypic changes are reminiscent of the epithelial-mesenchymal transition (EMT) that occurs during embryonic development and oncogenesis. The EMT is a complex process that converts epithelia into migratory mesenchymal cells. We here attempt to unravel the underlying mechanistic basis of these phenomena. HeLa cells transiently expressing EGFP-PRL-3 (HeLa-PRL-3) exhibit reduced levels of paxillin. Similarly, Chinese hamster ovary cells stably expressing myc-PRL-3 (CHO-PRL-3) also show marked reductions in paxillin, phosphorylated paxillin-Tyr(31), and vinculin at focal adhesion complexes and notable reductions in the levels of RhoA-GTP, Rac1-GTP, and filamentous-actin filaments. DLD-1 human colorectal cancer cells engineered to express EGFP-PRL-3 (DLD-1-PRL-3) underwent changes consistent with EMT. In these cells, PRL-3 activates Akt and inactivates glycogen synthase kinase-3beta as assessed by phosphospecific antibodies. PRL-3 up-regulates mesenchymal markers fibronectin and Snail and down-regulates epithelial markers E-cadherin, gamma-catenin (plakoglobin), and integrin beta(3), which are major effectors in the EMT pathway. The changes in these EMT characteristics brought about by PRL-3 can be abrogated by the phosphoinositide 3-kinase (PI3K) inhibitor LY294002, implying that PRL-3 acts upstream of PI3K and could play an initiating role to trigger the EMT switch during cancer metastasis. In addition, PRL-3 can down-regulate phosphatase and tensin homologue deleted on chromosome 10, which is an important antagonist of PI3K, further reinforcing PI3K/Akt function in PRL-3-triggered EMT. Catalytically inactive PRL-3 (C104S) was impaired in the above PRL-3-mediated events, indicating that these properties require phosphatase activity. Targeting PRL-3 may thus be a useful strategy to impede cancer cell invasion and metastasis.