Receptor protein tyrosine phosphatase α (RPTPα)-mediated Src activation is required for survival of tested human colon and oestrogen receptor-negative breast cancer cell lines. To explore whether mutated RPTPα participates in human carcinogenesis, we sequenced RPTPα cDNAs from five types of human tumours and found splice mutants in ∼30% of colon, breast, and liver tumours. RPTPα245, a mutant expressed in all three tumour types, was studied further. Although it lacks any catalytic domain, RPTPα245 expression in the tumours correlated with Src tyrosine dephosphorylation, and its expression in rodent fibroblasts activated Src by a novel mechanism. This involved RPTPα245 binding to endogenous RPTPα (eRPTPα), which decreased eRPTPα-Grb2 binding and increased eRPTPα dephosphorylation of Src without increasing non-specific eRPTPα activity. RPTPα245-eRPTPα binding was blocked by Pro210 → Leu/Pro211 → Leu mutation, consistent with the involvement of the structural 'wedge' that contributes to eRPTPα homodimerization. RPTPα245-induced fibroblast transformation was blocked by either Src or eRPTPα RNAi, indicating that this required the dephosphorylation of Src by eRPTPα. The transformed cells were tumourigenic in nude mice, suggesting that RPTPα245-induced activation of Src in the human tumours may have contributed to carcinogenesis.