Protein tyrosine phosphatases (PTPs) catalyze the hydrolysis of phosphotyrosine from specific signal-transducing proteins. Although regulatory mechanisms for protein kinases have been described, no general mechanism for controlling PTPs has been demonstrated. Numerous reports have shown that cellular redox status plays an important role in tyrosine phosphorylation-dependent signal transduction pathways. This study explores the proposal that PTPs may be regulated by reversible reduction/oxidation involving cellular oxidants such as hydrogen peroxide (H2O2). Recent reports indicated that H2O2 is transiently generated during growth factor stimulation and that H2O2 production is concomitant with relevant tyrosine phosphorylation. By use of recombinant enzymes, the effects of H2O2 on three PTPs [PTP1, LAR (leukocyte antigen-related), and VHR (vaccinia H1-related)] and three distinct serine/threonine protein phosphatases (PPs: PP2Calpha, calcineurin, and lambda phosphatase) were determined. Hydrogen peroxide had no apparent effect on PP activity. In contrast, PTPs were rapidly inactivated (kinact = 10-20 M-1 s-1) with low micromolar concentrations of H2O2 but not with large alkyl hydroperoxides. PTP inactivation was fully reversible with glutathione and other thiols. Because of the slower rate of reduction, modification occurred even in the presence of physiological thiol concentrations. By utilization of a variety of biochemical techniques including chemical modification, pH kinetic studies, and mutagenesis, the catalytic cysteine thiolate of PTPs was determined to be the selective target of oxidation by H2O2. By use of the electrophilic reagent 7-chloro-4-nitrobenzo-2-oxa-1, 3-diazole (NBD-Cl), it was shown that a cysteine sulfenic acid intermediate (Cys-SOH) is formed after attack of the catalytic thiolate on H2O2. A chemical mechanism for reversible inactivation involving a cysteine sulfenic acid intermediate is proposed.