A novel cytoplasmic protein-tyrosine phosphatase (PTPase) designated PTP20 was isolated from a PC12 cDNA library and shown to positively regulate the differentiation process in PC12 cells. The PTP20 open reading frame of 453 amino acids contains a single tyrosine phosphatase catalytic domain and displays closest homology to members of the PTP-PEST protein-tyrosine phosphatase family. Transient expression of PTP20 in Rat-1 cells resulted in the expression of a 50-kDa protein which exhibited PTPase activity in vitro. Expression of the 2.3-kilobase PTP20 mRNA increased during differentiation of nerve growth factor (NGF)-stimulated PC12 cells. Consistent with this observation, stable overexpression of PTP20 in PC12 cells resulted in accelerated neurite formation following NGF treatment. These findings suggest a positive regulatory role of PTP20 in NGF-dependent neuronal differentiation of PC12 cells.