Mutations in the tumor suppressor gene PTEN (MMAC1/TEP1) are associated with a large number of human cancers and several autosomal-dominant disorders. Mice mutant for PTEN die at early embryonic stages and the mutant embryonic fibroblasts display decreased sensitivity to cell death. Overexpression of PTEN in different mammalian tissue culture cells affects various processes including cell proliferation, cell death and cell migration. We have characterized the Drosophila PTEN gene and present evidence that both inactivation and overexpression of PTEN affect cell size, while overexpression of PTEN also inhibits cell cycle progression at early mitosis and promotes cell death during eye development in a context-dependent manner. Furthermore, we have shown that PTEN acts in the insulin signaling pathway and all signals from the insulin receptor can be antagonized by either Drosophila or human PTEN, suggesting a potential means for alleviating symptoms associated with altered insulin signaling.