Insulin activation of phosphoinositide 3-kinase (PI3K) signaling regulates glucose homeostasis through the production of phosphatidylinositol 3,4,5-trisphosphate (PIP3). The dual-specificity phosphatase and tensin homolog deleted on chromosome 10 (PTEN) blocks PI3K signaling by dephosphorylating PIP3, and is inhibited through its interaction with phosphatidylinositol 3,4,5-trisphosphate-dependent Rac exchanger 2 (P-REX2). The mechanism of inhibition and its physiological significance are not known. Here, we report that P-REX2 interacts with PTEN via two interfaces. The pleckstrin homology (PH) domain of P-REX2 inhibits PTEN by interacting with the catalytic region of PTEN, and the inositol polyphosphate 4-phosphatase domain of P-REX2 provides high-affinity binding to the postsynaptic density-95/Discs large/zona occludens-1-binding domain of PTEN. P-REX2 inhibition of PTEN requires C-terminal phosphorylation of PTEN to release the P-REX2 PH domain from its neighboring diffuse B-cell lymphoma homology domain. Consistent with its function as a PTEN inhibitor, deletion of Prex2 in fibroblasts and mice results in increased Pten activity and decreased insulin signaling in liver and adipose tissue. Prex2 deletion also leads to reduced glucose uptake and insulin resistance. In human adipose tissue, P-REX2 protein expression is decreased and PTEN activity is increased in insulin-resistant human subjects. Taken together, these results indicate a functional role for P-REX2 PH-domain-mediated inhibition of PTEN in regulating insulin sensitivity and glucose homeostasis and suggest that loss of P-REX2 expression may cause insulin resistance.