A recombinant protein-tyrosine-phosphatase has been expressed in Escherichia coli and purified to a single band by sodium dodecyl sulfate-polyacrylamide gel electrophoresis using affinity chromatography. When the phosphatase was allowed to react with 32P-labeled substrates and then rapidly denaturated, a 32P-labeled phosphoprotein could be visualized by sodium dodecyl sulfate-polyacrylamide gel electrophoresis. Transient formation of a 32P-labeled phosphoprotein was observed, and the 32P-labeled protein disappeared as substrate was consumed. In the presence of 32P-labeled p-nitrophenyl phosphate, 0.27 mol of phosphate was incorporated per mol of protein-tyrosine-phosphatase. Site-directed mutagenesis of a catalytically essential cystine residue (position 215) in the recombinant protein resulted in an inactive enzyme, and no phosphoprotein was formed. The 32P-labeled phosphoprotein showed a maximum lability between pH 2.5 and 3.5 and was rapidly decomposed in the presence of iodine. These properties, along with additional site-directed mutations, suggest that the protein-tyrosine-phosphatase forms a covalent thiol phosphate linkage between Cys215 and phosphate.