Cancer cell migration plays a crucial role during the metastatic process. Reversible tyrosine phosphorylation by protein tyrosine kinases (PTKs) and protein tyrosine phosphatases (PTPs) have been implicated in the regulation of cancer cell migration and invasion. However, the underlying mechanisms have not been fully elucidated. Here, we show that depletion of the FERM and PDZ domain-containing protein tyrosine phosphatase PTPN3 enhances lung cancer cell migration/invasion and metastasis by promoting actin filament assembly and focal adhesion dynamics. We further identified Src and DAAM1 (dishevelled associated activator of morphogenesis 1) as interactors of PTPN3. DAAM1 is a formin-like protein involved in the regulation of actin cytoskeletal remodeling. PTPN3 inhibits Src activity and Src-mediated phosphorylation of Tyr652 on DAAM1. The tyrosine phosphorylation of DAAM1 is essential for DAAM1 homodimer formation and actin polymerization. Ectopic expression of a DAAM1 phosphodeficient mutant inhibited F-actin assembly and suppressed lung cancer cell migration and invasion. Our findings reveal a novel mechanism by which reversible tyrosine phosphorylation of DAAM1 by Src and PTPN3 regulates actin dynamics and lung cancer invasiveness.