Receptor-protein tyrosine phosphatases (RPTPs), like receptor tyrosine kinases, regulate neuronal differentiation. While receptor tyrosine kinases are dimerized and activated by extracellular ligands, the extent to which RPTPs dimerize, and the effects of dimerization on phosphatase activity, are poorly understood. We have examined a neuronal type III RPTP, PTPRO; we find that PTPRO can form dimers in living cells, and that disulfide linkages in PTPROs intracellular domain likely regulate dimerization. Dimerization of PTPROs transmembrane and intracellular domains, achieved by ligand binding to a chimeric fusion protein, decreases activity toward artificial peptides and toward a putative substrate, tropomyosin-related kinase C (TrkC). Dephosphorylation of TrkC by PTPRO may be physiologically relevant, as it is efficient, and TrkC and PTPRO can be co-precipitated from transfected cells. Inhibition of PTPROs phosphatase activity by dimerization is interesting, as dimerization of a related RPTP, CD148/PTPRJ, increases activity. Thus, our results suggest a complex relationship between dimerization and activity in type III RPTPs.