Rat osteo-testicular protein tyrosine phosphatase (OST-PTP), expressed in osteoblasts and testis, is a receptor-like transmembrane protein with two tandemly repeated phosphatase domains in the cytoplasmic region. In this report, we show that the first domain (CD1) is enzymatically active and appears to be influenced by the catalytically inactive second domain (CD2). The activity of CD1 is specific to phosphorylated tyrosine. Full-length OST-PTP protein expressed in COS cells has a molecular mass of approximately 185 kDa, and immunoprecipitates of this protein using OST-PTP-specific antisera show strong tyrosine phosphatase activity. Expression of OST-PTP mRNA in primary rat calvarial osteoblasts is temporally regulated, and peak expression is found at approximately day 15, which correlated well with the appearance of OST-PTP protein and its associated tyrosine phosphatase activity. Treatment of osteoblasts in culture with antisense oligonucleotides directed against the 5' untranslated region of OST-PTP results in abrogation of differentiation, confirming the functional importance of OST-PTP expression in osteoblast development.