The reversible regulation of protein tyrosine phosphatase is an important mechanism in processing signal transduction and regulating cell cycle. Recent reports have shown that the active site cysteine residue, Cys215, can be reversibly oxidized to a cysteine sulfenic derivative (Denu and Tanner, 1998; Lee et al., 1998). We propose an additional modification that has implications for the in vivo regulation of protein tyrosine phosphatase 1B (PTP1B, EC 18.104.22.168): the glutathionylation of Cys215 to a mixed protein disulfide. Treatment of PTP1B with diamide and reduced glutathione or with only glutathione disulfide (GSSG) results in a modification detected by mass spectrometry in which the cysteine residues are oxidized to mixed disulfides with glutathione. The activity is recovered by the addition of dithiothreitol, presumably by reducing the cysteine disulfides. In addition, inactivated PTP1B is reactivated enzymatically by the glutathione-specific dethiolase enzyme thioltransferase (glutaredoxin), indicating that the inactivated form of the phosphatase is a glutathionyl mixed disulfide. The cysteine sulfenic derivative can easily oxidize to its irreversible sulfinic and sulfonic forms and hinder the regulatory efficiency if it is not converted to a more stable and reversible end product such as a glutathionyl derivative. Glutathionylation of the cysteine sulfenic derivative will prevent the enzyme from further oxidation to its irreversible forms, and constitutes an efficient regulatory mechanism.