Protein tyrosine phosphatases act in conjunction with protein kinases to regulate the tyrosine phosphorylation events that control cell activation and differentiation. We have isolated a previously undescribed human phosphatase, Lyp, that encodes an intracellular 105-kD protein containing a single tyrosine phosphatase catalytic domain. The noncatalytic domain contains four proline-rich potential SH3 domain binding sites and an NXXY motif that, if phosphorylated, may be recognized by phosphotyrosine binding (PTB) domains. Comparison of the Lyp amino acid sequence with other known proteins shows 70% identity with the murine phosphatase PEP. The human Lyp gene was localized to chromosome 1p13 by fluorescence in situ hybridization analysis. We also identified an alternative spliced form of Lyp RNA, Lyp2. This isoform encodes a smaller 85-kD protein with an alternative C-terminus. The lyp phosphatases are predominantly expressed in lymphoid tissues and cells, with Lyp1 being highly expressed in thymocytes and both mature B and T cells. Increased Lyp1 expression can be induced by activation of resting peripheral T lymphocytes with phytohemagglutinin or anti-CD3. Lyp1 was found to be constitutively associated with the proto-oncogene c-Cbl in thymocytes and T cells. Overexpression of lyp1 reduces Cbl tyrosine phosphorylation, suggesting that it may be a substrate of the phosphatase. Thus, Lyp may play a role in regulating the function of Cbl and its associated protein kinases.