Protein tyrosine‐phosphatases (PTPs) play important roles in various biological processes. Deregulation in PTP function has been implicated in carcinogenesis and tumour progression in many cancer types. However, the role of protein tyrosine phosphatase receptor type B (PTPRB) in non‐small‐cell lung cancer (NSCLC) tumorigenesis has not been investigated. Lentiviral vector expressing PTPRB cDNA or shRNA was infected into A549 and H1299 cell lines, followed by cell proliferation, colony formation, soft agar and invasion assays. A549 xenograft mouse model was used to evaluate in vivo function of PTPRB. Quantitative polymerase chain reaction (PCR) was used to measure PTPRB expression in NSCLC patient samples. Kaplan Meier analysis was performed to assess association between PTPRB expression and patient overall survival (OS). Multivariate analysis was performed to evaluate prognostic significance of PTPRB. Overexpression of PTPRB reduced cell proliferation rate, colony formation efficiency, soft agar growth and cell invasion in A549 and H1299 cells, as well as tumour growth rate in A549 xenograft. Knockdown of PTPRB increased Src phosphorylation and cell invasion, which was reversed by Src inhibitor PP2. Additionally, PTPRB was down‐regulated in NSCLC patient and was associated with patient OS. PTPRB regulates Src phosphorylation and tumorigenesis in NSCLC. PTPRB may serve as an independent prognostic biomarker for NSCLC patients.