We have cloned a gene encoding a second Dictyostelium discoideum protein-tyrosine phosphatase (PTP2) whose catalytic domain has approximately 30 to 39% amino acid identity with those of other PTPs and a 41% amino acid identity with D. discoideum PTP1. Like PTP1, PTP2 is a nonreceptor PTP with the catalytic domain located at the C terminus of the protein. PTP2 has a predicted molecular weight of 43,000 and possesses an acidic 58-amino-acid insertion 24 amino acids from the N terminus of the conserved catalytic domain. PTP2 transcripts are expressed at moderate levels in vegetative cells and are induced severalfold at the onset of development. Studies with a PTP2-lacZ reporter gene fusion indicate that PTP2, like PTP1, is preferentially expressed in prestalk and anterior-like cell types during the multicellular stages of development. PTP2 gene disruptants (ptp2 null cells) are not detectably altered in growth and show a temporal pattern of development similar to that of wild-type cells. ptp2 null slugs and fruiting bodies, however, are significantly larger than those of wild-type slugs, suggesting a role for PTP2 in regulating multicellular structures. D. discoideum strains overexpressing PTP2 from the PTP2 promoter exhibit growth rate and developmental abnormalities, the severity of which corresponds to the level of PTP2 overexpression. Strains with high overexpression of the PTP2 gene grow slowly on bacterial lawns and produce small cells in axenic medium. When development is initiated in these strains, cells are able to aggregate but then stop further morphogenesis for 6 to 8 h, after which time a variable fraction of these aggregates continue with normal timing, producing diminutive fruiting bodies. These disruption and overexpression phenotypes for PTP2 are distinct from the corresponding mutant PTP1 phenotypes. Immunoprobing PTP2 mutant strains during growth and development with antiphosphotyrosine antibodies reveals several changes in the tyrosine phosphorylation of proteins in PTP2 mutant strains compared with that in wild-type cells. These changes are different from those identified in the previously characterized corresponding PTP1 disruption and overexpression mutant strains. Thus, although PTP2 and PTP1 are nonreceptor PTPs with similar spatial patterns of expression, our findings suggest that they possess distinct regulatory functions in controlling D. discoideum growth and development.