The protein tyrosine phosphatase PTPL1/PTPN13, the activity of which is decreased through allelic loss, promoter methylation, or somatic mutations in some tumors, has been proposed as a tumor suppressor gene. Moreover, our recent clinical study identified PTPL1 expression level as an independent prognostic indicator of a favorable outcome for patients with breast cancer. However, how PTPL1 can affect tumor aggressiveness has not been characterized. Here, we first show that PTPL1 expression, assessed by immunohistochemistry, is decreased in breast cancer and metastasis specimens compared with nonmalignant tissues. Second, to evaluate whether PTPL1 plays a critical role in breast cancer progression, RNA interference experiments were performed in poorly tumorigenic MCF-7 breast cancer cells. PTPL1 inhibition drastically increased tumor growth in athymic mice and also enhanced several parameters associated with tumor progression, including cell proliferation on extracellular matrix components and cell invasion. Furthermore, the inhibition of Src kinase expression drastically blocked the effects of PTPL1 silencing on cell growth. In PTPL1 knockdown cells, the phosphorylation of Src on tyrosine 419 is increased, leading to the activation of its downstream substrates Fak and p130cas. Finally, substrate-trapping experiments revealed that Src tyrosine 419 is a direct target of the phosphatase. Thus, by identification of PTPL1 as the first phosphatase able to inhibit Src through direct dephosphorylation in intact cells, we presently describe a new mechanism by which PTPL1 inhibits breast tumor aggressiveness.