A variant of the PTPN22-encoded Lyp phosphatase (Lyp620W) confers risk for autoimmune disease, but the mechanisms underlying this association remain unclear. We show here that mice expressing the Lyp variant homolog Pep619W manifest thymic and splenic enlargement accompanied by increases in T-cell number, activation and positive selection and in dendritic- and B-cell activation. Although Ptpn22 (Pep) transcript levels were comparable in Pep619W and wild-type Pep619R mice, Pep protein levels were dramatically reduced in the mutant mice, with Pep619W protein being more rapidly degraded and showing greater association with and in vitro cleavage by calpain 1 than Pep619R. Similarly, levels of the Lyp620W variant were decreased in human T and B cells, and its calpain binding and cleavage were increased relative to wild-type Lyp620R. Thus, calpain-mediated degradation with consequently reduced Lyp/Pep expression and lymphocyte and dendritic cell hyperresponsiveness represents a mechanism whereby Lyp620W may increase risk for autoimmune disease.