Purification of a major placental membrane protein phosphotyrosine phosphatase (PTP-I) through the use of a nonhydrolysable phosphotyrosine analogue affinity ligand has enabled identification of the enzyme as a single polypeptide of at least 46 kDa. This phosphatase specifically dephosphorylates phosphotyrosine-containing substrates, including the src peptide, the epidermal-growth-factor receptor tyrosine kinase and the non-receptor tyrosine kinase p56lck. The p56lck can be dephosphorylated by PTP-I at two tyrosine residues (Tyr-394 and Tyr-505), which are differentially phosphorylated in vitro and in vivo and have been suggested to modulate kinase activity. The activity of PTP-I towards these substrates indicates a possible function of regulation of cellular tyrosine phosphorylation pathways at the level of growth-factor receptor and/or oncogene/proto-oncogene tyrosine kinases. Kinetic analyses show that PTP-I exhibits a Km value of about 2 microM with either src peptide or reduced, carboxyamidomethylated and maleylated (RCM)-lysozyme as substrate, and is inhibited in a mixed competitive manner by the polyanions heparin and poly(Glu4,Tyr1). Sequencing of PTP-I peptides reveals almost complete identity with sequences within the N-terminal half of the 37 kDa non-receptor tyrosine phosphatase 1B. However, the size and amino acid composition of PTP-I are similar to that of a higher-molecular-mass form of PTP 1B predicted from cDNA cloning. These results suggest that the 37 kDa PTP 1B is a proteolysed form of PTP-I, and provide evidence that a larger form of PTP 1B exists in vivo, at least in association with placental membranes.