The PRL (phosphatase of regenerating liver) phosphatases represent a distinct class of protein tyrosine phosphatases, which are implicated in tumorigenesis and metastasis processes. Accumulating evidence indicates that alteration of PRL1 expression affects cell motility and tumor metastasis, although the biochemical pathways regulated by PRL1 remain less well defined. We find that elevated expression of PRL1 increases the levels of the matrix metalloproteinases MMP2 and MMP9. We have studied whether MMP2 and MMP9 are regulated by PRL1 and participate in PRL1-dependent cell migration and invasion. To this end, knockdown or inhibition of MMP2 and MMP9 by either siRNA or a specific small molecule inhibitor blocks PRL1-mediated cell migration and invasion. In addition, we report that upregulation of PRL1 activates the Src kinase through increased Tyr416 phosphorylation, which culminates in the phosphorylation of focal adhesion proteins FAK and p130(Cas), as well as ERK1/2 activation. We provide evidence that both the Src and ERK1/2 pathways contribute to the increased motility of the PRL1 cells. We further demonstrate that Src and ERK1/2 activities are required for the PRL1-induced increase in the levels of MMP2 and MMP9, likely through activation of transcription factors AP1 and Sp1. Accordingly, increased PRL1 expression results in activation of Src and ERK1/2, which stimulates MMP2 and MMP9 production, leading to increased cell migration and invasion.