Alendronate (ALN), an aminobisphosphonate used in the treatment of osteoporosis, is a potent inhibitor of bone resorption. Its molecular target is still unknown. This study examines the effects of ALN on the activity of osteoclast protein-tyrosine phosphatase (PTP; protein-tyrosine-phosphate phosphohydrolase, EC 3.1.3.48), called PTPepsilon. Using osteoclast-like cells generated by coculturing mouse bone marrow cells with mouse calvaria osteoblasts, we found by molecular cloning and RNA blot hybridization that PTPepsilon is highly expressed in osteoclastic cells. A purified fusion protein of PTPepsilon expressed in bacteria was inhibited by ALN with an IC50 of 2 microM. Other PTP inhibitors--orthovanadate and phenylarsine oxide (PAO)-inhibited PTPepsilon with IC50 values of 0.3 microM and 18 microM, respectively. ALN and another bisphosphonate, etidronate, also inhibited the activities of other bacterially expressed PTPs such as PTPsigma and CD45 (also called leukocyte common antigen). The PTP inhibitors ALN, orthovanadate, and PAO suppressed in vitro formation of multinucleated osteoclasts from osteoclast precursors and in vitro bone resorption by isolated rat osteoclasts (pit formation) with estimated IC50 values of 10 microM, 3 microM, and 0.05 microM, respectively. These findings suggest that tyrosine phosphatase activity plays an important role in osteoclast formation and function and is a putative molecular target of bisphosphonate action.