PTPN22 is a gene encoding the protein tyrosine phosphatase Lyp. A missense mutation changing residue 1858 from cytosine to thymidine (1858C/T) is associated with multiple autoimmune disorders. Studies have demonstrated that Lyp has an inhibitory effect on TCR signaling; however, the presence of autoantibodies in all of the diseases associated with the 1858T variant and recent evidence that Ca(2+) flux is altered in B cells of 1858T carriers indicate a role for Lyp in B cell signaling. In this study we show that B cell signal transduction is impaired in individuals who express the variant. This defect in signaling is characterized by a deficit in proliferation, a decrease in phosphorylation of key signaling proteins, and is reversed by inhibition of Lyp. These findings suggest that the PTPN22 1858T variant alters BCR signaling and implicate B cells in the mechanism by which the PTPN22 1858T variant contributes to autoimmunity.