Two forms of the transmembrane human protein tyrosine phosphatase (PTP sigma), generated by alternative splicing, were identified by cDNA cloning and Northern hybridization with selective cDNA probes. The larger form of PTP sigma is expressed in various human tissues, human osteosarcoma, and rat tibia. The hPTP sigma cDNA codes for a protein of 1911 amino acid residues and is composed of a cytoplasmic region with two PTP domains and an extracellular region that can be organized into three tandem repeats of immunoglobulin-like domains and eight tandem repeats of fibronectin type III-like domains. In the brain, the major transcript of PTP sigma is an alternatively spliced mRNA, in which the coding region for the fibronectin type III-like domains number four to seven are spliced out, thus coding for a protein of 1502 amino acid residues similar to the rat PTP sigma and rat PTP-NE3. Using in situ hybridization, we assigned hPTP sigma to chromosome 6, arm 6q and band 6q15. The bacterial-expressed hPTP sigma exhibits PTPase activity that was inhibited by orthovanadate (IC50 = 0.02 microM) and by two bisphosphonates used for the treatment of bone diseases, alendronate (ALN) (IC50 = 0.5 microM) and etidronate (IC50 = 0.2 microM). In quiescent calvaria osteoblasts, micromolar concentrations of vanadate, ALN and etidronate stimulate cellular proliferation. These findings show tissue-specific alternative splicing of PTP sigma and suggest that PTPs are putative targets of bisphosphonate action.