Germline mutations in PTEN have been described in a spectrum of syndromes that are collectively known as PTEN hamartoma tumor syndrome (PHTS). In addition to being mutated in the germline in PHTS, somatic loss-of-function PTEN mutations are seen in a wide range of sporadic human tumors. Here, we show evidence of upregulated proteasome activity in PHTS-derived lymphoblasts, Pten knock-in mice and cell lines expressing missense and nonsense PTEN mutations. Notably, elevated nuclear proteasome activity occurred in cells expressing the nuclear mislocalized PTEN-K62R mutant, whereas elevated cytosolic proteasome activity was observed in cells expressing the cytosolic-predominant mutant PTEN (M3M4 and C136R). Treatment with proteasome inhibitor MG-132 was able to restore both nonsense and missense mutant PTEN protein levels in vitro. PHTS patients with destabilizing PTEN mutations and proteasome hyperactivity are more susceptible to develop neurologic symptoms such as mental retardation and autism than mutation-positive patients with normal proteasome activity. A detailed molecular and functional analysis shows that PTEN mutants most likely cause proteasome hyperactivity via 2 different mechanisms, namely, induction of proteotoxic stress and loss of protein phosphatase activity. These results provide novel insights into the cellular functions of PTEN and reveal molecular mechanisms whereby PTEN mutations increase proteasome activity and lead to neurologic phenotypes. Cancer Res; 73(10); 3029–40. ©2013 AACR.