Leishmania parasites are eukaryotic protozoans responsible for a variety of human diseases known as leishmaniasis, which ranges from skin lesions to fatal visceral infections. Leishmania is transmitted by the bite of an infected sandfly where it exists as promastigotes and, upon entry into a mammalian host, differentiates into amastigotes, which replicate exclusively in macro-phages. The biochemical pathways enabling Leishmania to differentiate and survive in the mammalian host are poorly defined. We have therefore examined the role of protein-tyrosine phosphorylation, which is essential in regulating cell function in higher eukaryotes. Using the recently completed Leishmania genome, we have identified and cloned a Leishmania protein-tyrosine phosphatase (PTP) gene (LPTP1) by virtue of its homology with the human protein-tyrosine phosphatase 1B gene (hPTP1B). The enzyme activity of recombinant LPTP1 was confirmed using a combination of PTP-specific substrates and inhibitors. We further demonstrate, by creating LPTP1 null mutants through gene targeting, that LPTP1 is necessary for survival as amastigotes in mice, but it is dispensable for survival as promastigotes in culture. Human PTPs, including the PTP1B enzyme, are actively pursued drug targets for a variety of diseases. The observations with the LPTP1 mutants in mice suggest that it may also represent a drug target against the mammalian amastigote stage. However, in silico structure analysis of LPTP1 revealed a striking similarity with hPTP1B in the active site suggesting that, although this is an attractive drug target, it may be difficult to develop an inhibitor specific for the Leishmania LPTP1.