Isoprenylated proteins have important functions in cell growth and differentiation of eukaryotic cells. Inhibitors of protein prenylation in malaria have recently shown strong promise as effective antimalarials. In studying protein prenylation in the malaria protozoan parasite Plasmodium falciparum, we have shown earlier that the incubation of P. falciparum cells with (3)H-prenol precursors resulted in various size classes of labeled proteins. To understand the physiological function of prenylated proteins of malaria parasites, that are targets of prenyltransferase inhibitors, we searched the PlasmoDB database for proteins containing the C-terminus prenylation motif. We have identified, among other potentially prenylated proteins, an orthologue of a PRL (protein of regenerating liver) subgroup protein tyrosine phosphatases, termed PfPRL. Here, we show that PfPRL is expressed in the parasite's intraerythrocytic stages, where it partially associates with endoplasmic reticulum and within a subcompartment of the food vacuole. Additionally, PfPRL targeting parallels that of apical membrane antigen-1 in developing merozoites. Recombinant PfPRL shows phosphatase activity that is preferentially inhibited by a tyrosine phosphatase inhibitor suggesting that PfPRL functions as a tyrosine phosphatase. Recombinant PfPRL can also be farnesylated in vitro. Inhibition of malarial farnesyltransferase activity can be achieved with the heptapetide RKCHFM, which corresponds to the C-terminus of PfPRL. This study provides the first evidence for expression of enzymatically active PRL-related protein tyrosine phosphatases in malarial parasites, and demonstrates the potential of peptides derived from Plasmodium prenylated proteins as malarial farnesyltransferase inhibitors.