Ligation of the T cell receptor complex and CD4 leads to activation of the protein tyrosine kinases p56lck and p59fyn resulting in phosphorylation of TcR zeta chain and the recruitment of ZAP-70. In this study, we have reconstituted p56lck phosphorylation of TcR zeta and ZAP-70 recruitment in heterologous cells and examined the role of the tyrosine phosphatase HCP in regulating the process. Both p56lck and p59fyn induce significant phosphorylation of TcR zeta. However, under conditions of comparable p56lck and p59fyn expression, p56lck was found to induce three to four fold greater in vivo phosphorylation of TcR zeta. HCP dephosphorylated p56lck, ZAP-70 and the TcR zeta chain. Further, dephosphorylation of the different TcR zeta isoforms results in disruption of the interaction between TcR zeta and ZAP-70. These results indicate that HCP acts to negatively regulate signal transduction pathways in T cells.