Alpha and gamma interferons rapidly induce several early response genes in primary human diploid fibroblasts. The transcription rates of these genes are maximal after 1 h of interferon treatment and return to basal levels within 8 h. Three different interferon-activated DNA-binding complexes (ISGF3, GAF, and FcRF gamma) that are responsible for transcriptional activation of cellular genes have been characterized. Assembly of these complexes requires tyrosine phosphorylation of one or more of the protein components. In this report, we demonstrate that a nuclear tyrosine phosphatase is responsible for the deactivation of these interferon-regulated transcription factors and the subsequent transcriptional downregulation of the corresponding genes. Furthermore, tyrosine phosphorylation is required for nuclear localization of the 91-kDa protein that is part of all three interferon-induced transcription complexes. These results provide the first evidence for a nuclear tyrosine phosphatase activity as a mechanism of transcriptional regulation.