Tyrosine phosphorylation is controlled by the opposing actions of tyrosine kinases and phosphotyrosine phosphatases (PTPs). src homology 2 domains (SH2) are found in several types of signaling proteins, including some tyrosine kinases. These domains bind phosphotyrosyl proteins and thus help promote signal transduction. Using mixed oligonucleotide-directed polymerase chain reactions, two previously undescribed rat PTP cDNA fragments were generated. Through subsequent screening of rat megakaryocyte and human erythroleukemia libraries, we obtained a full-length coding sequence for one of these fragments. This cDNA, SH-PTP1, encodes a tyrosine phosphatase containing two highly conserved SH2 domains. SH-PTP1, with a 2.4-kilobase mRNA, a predicted open reading frame of 595 amino acids, and a structure suggesting a nontransmembrane protein, is expressed primarily in hematopoietic and epithelial cells. When expressed in Escherichia coli, SH-PTP1 possesses PTP activity. The structure of SH-PTP1 establishes an additional branch of the tyrosine phosphatase family and suggests mechanisms through which tyrosine phosphatases might participate in signal transduction pathways.