The plasma membrane-associated tyrosine phosphatase PTPRO is frequently transcriptionally repressed in cancers and signifies poor prognosis of breast cancer patients. In this study, deletion of Ptpro in MMTV-Erbb2 transgenic mice dramatically shortened the mammary tumor latency and accelerated tumor growth due to loss of Ptpro within the breast cancer cells but not in surrounding tissue as confirmed by hetero-transplantation studies. Both in vitro and in vivo data demonstrated that the phosphatase activity was required for the inactivation of ERBB2 and its downstream signaling. PTPRO regulated the phosphorylation status of ERBB2 at Y1248. Co-immunoprecipitation and proximity ligation assay (Duolink) indicated that PTPRO directly physically interacted with ERBB2. Moreover, PTPRO phosphatase activity shortened the half-life of ERBB2 by increasing endocytotic degradation. PTPRO reexpression by demethylation treatment using 5-azacytidine reduced the proliferation and colony formation potential in ERBB2-positive breast cancer cells. Taken together, PTPRO inhibited ERBB2-driven breast cancer through dephosphorylation leading to dual effects of ERBB2 signaling suppression and endosomal internalization of ERBB2, Therefore, reexpression of PTPRO may be a potential therapy for ERBB2-overexpressing breast cancer.