PTPH1 is a human protein-tyrosine phosphatase with homology to the band 4.1 superfamily of cytoskeleton-associated proteins. Here, we report the purification and biochemical characterization of this enzyme from baculovirus-infected insect cells. The purified protein exhibited an apparent M(r) of 120,000 on SDS gels. The native enzyme dephosphorylated both myelin basic protein (MBP) and reduced, carboxamidomethylated, and maleylated lysozyme (RCML) but was over 5-fold more active on MBP. The Km values for the two substrates were similar (1.45 microM for MBP and 1.6 microM for RCML). Phosphorylation of PTPH1 by protein kinase C in vitro resulted in a decrease in Km but had no effect on Vmax. Removal of the NH2-terminal band 4.1 homology domain of PTPH1 by limited trypsin cleavage stimulated dephosphorylation of RCML but inhibited its activity toward MBP. The dephosphorylation of RCML by full-length PTPH1 was enhanced up to 6-fold by unphosphorylated MBP and increasing ionic strength up to 0.2 M NaCl, whereas trypsinized preparations of PTPH1 containing the isolated catalytic domain were unaffected. These results suggest that in addition to a potential role in controlling subcellular localization, the NH2-terminal band 4.1 homology domain of PTPH1 may exert a direct effect on catalytic function.