The protein tyrosine phosphatase PTP-PEST is an 88 kDa cytosolic enzyme which is ubiquitously expressed in mammalian tissues. We have expressed PTP-PEST using recombinant baculovirus, and purified the protein essentially to homogeneity in order to investigate phosphorylation as a potential mechanism of regulation of the enzyme. PTP-PEST is phosphorylated in vitro by both cyclic AMP-dependent protein kinase (PKA) and protein kinase C (PKC) at two major sites, which we have identified as Ser39 and Ser435. PTP-PEST is also phosphorylated on both Ser39 and Ser435 following treatment of intact HeLa cells with TPA, forskolin or isobutyl methyl xanthine (IBMX). Phosphorylation of Ser39 in vitro decreases the activity of PTP-PEST by reducing its affinity for substrate. In addition, PTP-PEST immunoprecipitated from TPA-treated cells displayed significantly lower PTP activity than enzyme obtained from untreated cells. Our results suggest that both PKC and PKA are capable of phosphorylating, and therefore inhibiting, PTP-PEST in vivo, offering a mechanism whereby signal transduction pathways acting through either PKA or PKC may directly influence cellular processes involving reversible tyrosine phosphorylation.