We characterized the role of protein tyrosine phosphatase (PTP)-alpha in focal adhesion (FA) formation and remodeling using wild-type and PTPalpha-deficient (PTPalpha(-/-)) cells. Compared with wild-type cells, spreading PTPalpha(-/-) fibroblasts displayed fewer leading edges and formed elongated alpha-actinin-enriched FA at the cell periphery. These features suggest the presence of slowly remodeling cell adhesions and were phenocopied in human fibroblasts in which PTPalpha was knocked down using short interfering RNA (siRNA) or in NIH-3T3 fibroblasts expressing catalytically inactive (C433S/C723S) PTPalpha. Fluorescence recovery after photobleaching showed slower green fluorescence protein-alpha-actinin recovery in the FA of PTPalpha(-/-) than wild-type cells. These alterations correlated with reduced cell spreading, adhesion, and polarization and retarded contraction of extracellular matrices in PTPalpha(-/-) fibroblasts. Activation of Rac1 and its recruitment to FA during spreading were diminished in cells expressing C433S/C723S PTPalpha. Rac1(-/-) cells also displayed abnormally elongated and peripherally distributed FA that failed to remodel. Conversely, expression of constitutively active Rac1 restored normal FA remodeling in PTPalpha(-/-) cells. We conclude that PTPalpha is required for remodeling of FA during cell spreading via a pathway involving Rac1.