PTEN is a tumor suppressor gene implicated in both sporadic cancers and inherited tumor-prone syndromes. Here we show that pten+/- mice display a partially penetrant embryonic lethality. This lethality is associated with defects in both neural and placental development. Notably, this lethality is completely rescued by grb2 haploinsufficiency. In contrast, grb2 heterozygosity did not alter tumorigenesis in either pten+/- or T cell-specific pten-/- mice. grb2-/hypomorph murine embryonic fibroblasts (MEFs) show decreased activation of both PKB and Erk upon stimulation with epidermal growth factor, whereas grb2-/hypomorph; pten+/- MEFs activate PKB but not Erk normally. Similarly, grb2-/hypomorph fibroblasts die in low serum, and this phenotype is rescued by pten haploinsufficiency. Activation of both PKB and Erk as well as survival in low serum-containing media are all rescued by reexpression of Grb2 containing mutations within the N-terminal Src homology 3 (SH3) domain, but not by C-terminal SH3 domain mutants. The N-terminal SH3 domain mutants fail to bind to Sos, whereas the C-terminal SH3 domain mutants fail to bind to Gab1, suggesting that Erk and PKB activation in fibroblasts in response to epidermal growth factor depends on Gab1 or other C-terminal SH3 domain-interacting proteins, but not on Sos. Thus, PTEN/phosphatidylinositol 3' kinase signaling requires Grb2 during both embryonic development and fibroblast survival, but Grb2 heterozygosity does not effect tumorigenesis in pten-deficient mice. In fibroblasts, survival signals emanating from the epidermal growth factor receptor appear to be PKB-dependent, and this activation depends on the C-terminal SH3 domain of Grb2, likely through the interaction of Grb2 with Gab1.