The effect of glucocorticoids, known to induce inhibition of growth and differentiation of pancreatic cells, has been examined on the tyrosine phosphatase containing two src homology 2 domains, PTP1C, in rat pancreatic cancer AR42J cells. Immunoblotting analysis revealed that PTP1C protein was present in AR42J cells as two PTP1C species of 66 and 31 kilodaltons (kDa), the 31-kDa species representing a proteolytic product of the larger form. Dexamethasone increased the level of the two PTP1C species by 2 to 3 times. Nearly 80% of the PTP1C molecules were found in the particulate fraction in control cells and dexamethasone did not change the distribution of PTP1C. The increase of PTP1C protein was also detected by immunohistochemical analysis. Dexamethasone increased the tyrosine phosphatase activity of immunoprecipitated PTP1C. In addition, dexamethasone raised the level of expression of PTP1C messenger RNA in a time- and dose-dependent manner in relation with its effect on cell growth and differentiation. This effect was selective, the messenger RNA levels of the other tyrosine phosphatase containing two src homology 2 domains (SH2), PTP1D, and that of the cytosolic PTP1 being not affected. This is the first report of glucocorticoid increase of PTP1C expression, suggesting that PTP1C may be involved in the glucocorticoid-mediated pancreatic cell differentiation.