In the epidermis tyrosine kinases such as those found in the epidermal growth factor receptor (EGF-R) phosphorylate regulatory molecules on tyrosine and play an important role in controlling epidermal growth. Phosphotyrosyl phosphatases (PTPase) that dephosphorylate EGF-R and other proteins phosphorylated on tyrosine must also play an important role in controlling epidermal growth. The presence and metabolism of one such PTPase, PTP-1B, was detected and studied in human skin using biochemical, immunochemical, and molecular biologic methods. The message for PTP-1B was expressed in human epidermis, in keratinocytes cultured from human epidermis, and in human keratinocyte cell lines. The 49-kDa but not the 37-kDa form of PTP-1B was identified in membranes prepared from these cells and tissues by immunodetection on Western blots. Nearly all of the labeled proteins identified by gel electrophoresis of an A-431 particulate fraction phosphorylated with [gamma-32P] ATP in the presence of epidermal growth factor are substrates for PTP-1B because their labeling decreased after incubation with a catalytically active and purified PTP-1B fusion protein. Immunohistochemical methods were used to show that PTP-1B was primarily localized to the basal cell layers in normal thick epidermis. The presence of PTP-1B in intact human epidermis suggests that this molecule is not an artifact limited to cultured cells but is an important molecule in the in vivo regulation of epidermal functions.