Proteolytic processing and ectodomain shedding have been described for a broad spectrum of transmembrane proteins under both normal and pathophysiological conditions and has been suggested as one mechanism to regulate a protein's function. It has also been documented for the receptor-like protein tyrosine phosphatase PTP-LAR, induced by treating cells with the tumor promoter TPA or the calcium ionophor A23187. Here we identified the epidermal growth factor receptor (EGFR) as both an association partner of PTP-LAR, that mediates phosphorylation of the latter, as well as an inducer of LAR-cleavage. Both overexpression of this kinase and stimulation of endogenous EGFR in various tumor cell lines were shown to induce proteolytic processing of the catalytic LAR-P-subunit. In contrast to TPA-induced shedding of PTP-LAR, EGFR-mediated cleavage did not require PKC-activity. For both stimuli, however, processing of the P-subunit turned out to be dependent on the activation of the MAP kinases ERK1 and ERK2, and was completely abrogated upon pre-treating cells with Batimastat, indicating the involvement of a metalloproteinase in this pathway. Being strongly impaired in fibroblasts derived from ADAM-17/TACE-knockout-mice or tumor cells that express a dominant negative mutant of ADAM-17/TACE, cleavage of PTP-LAR is suggested to be mediated by this metalloproteinase. Paralleled by rapid reduction of cell surface-localized LAR-E-subunit, EGFR-induced cleavage could be shown to lead to degradation of the catalytic LAR-P-subunit, thereby resulting in a significantly reduced overall cellular phosphatase activity of PTP-LAR. These results for the first time identify a protein tyrosine phosphatase as a potential substrate of TACE and describe proteolytic processing of PTP-LAR as a means of regulating phosphatase activity downstream and thus under the control of EGFR-mediated signaling pathways.