Protein tyrosine phosphatase 1B (PTP1B) is a negative regulator of BCR-ABL-mediated transformation in vitro and in vivo. To investigate whether PTP1B modulates the biological effects of the abl kinase inhibitor STI571 in BCR-ABL-positive cells, we transfected Philadelphia chromosome-positive (Ph+) chronic myeloid leukemia cell-derived K562 cells with either wild-type PTP1B (K562/PTP1B), a substrate-trapping dominant-negative mutant PTP1B (K562/D181A), or empty vector (K562/mock). Cells were cultured with or without STI571 and analyzed for its effects on proliferation, differentiation, and apoptosis. In both K562/mock and K562/PTP1B cells, 0.25 to 1 mumol/L STI571 induced dose-dependent growth arrest and apoptosis, as measured by a decrease of cell proliferation and an increase of Annexin V-positive cells and/or of cells in the sub-G(1) apoptotic phase. Western blot analysis showed increased protein levels of activated caspase-3 and caspase-8 and induction of poly(ADP-ribose) polymerase cleavage. Low concentrations of STI571 promoted erythroid differentiation of these cells. Conversely, K562/D181A cells displayed significantly lower PTP1B-specific tyrosine phosphatase activity and were significantly less sensitive to STI571-induced growth arrest, apoptosis, and erythroid differentiation. Pharmacologic inhibition of PTP1B activity in wild-type K562 cells, using bis(N,N-dimethylhydroxamido)hydroxooxovanadate, attenuated STI571-induced apoptosis. Lastly, comparison of the STI571-sensitive Ph+ acute lymphoblastic leukemia cell line SupB15 with a STI571-resistant subline revealed significantly decreased PTP1B activity and enhanced BCR-ABL phosphorylation in the STI571-resistant SupB15 cells. In conclusion, functional PTP1B is involved in STI571-induced growth and cell cycle arrest, apoptosis, and differentiation, and attenuation of PTP1B function may contribute to resistance towards STI571.