The tyrosine-specific phosphoprotein phosphatase encoded by the Saccharomyces cerevisiae PTP1 gene dephosphorylates artificial substrates in vitro, but little is known about its functions and substrates in vivo. The presence of Ptp1 resulted in dephosphorylation of multiple tyrosine-phosphorylated proteins in yeast expressing a heterologous tyrosine-specific protein kinase, indicating that Ptp1 can dephosphorylate a broad range of substrates in vivo. Correspondingly, several proteins phosphorylated at tyrosine by endogenous protein kinases exhibited a marked increase in tyrosine phosphorylation in ptp1 mutant cells. One of these phosphotyrosyl proteins (p70) was also dephosphorylated in vitro when incubated with recombinant Ptp1. p70 was purified to homogeneity; analysis of four tryptic peptides revealed that p70 is identical to the recently described FPR3 gene product, a nucleolarly localized proline rotamase of the FK506- and rapamycin-binding family. The identity of p70 with Fpr3 was confirmed in the demonstration that the abundance of tyrosine-phosphorylated p70 in ptp1 mutants was strictly correlated with the level of FPR3 expression; immobilized phosphotyrosyl Fpr3 was directly dephosphorylated by recombinant Ptp1. Site-directed mutagenesis demonstrated that the site of tyrosine phosphorylation is Tyr-184, which resides within the nucleolin-like amino-terminal domain of Fpr3. Protein kinase activities from yeast cell extracts can bind to and phosphorylate the immobilized amino-terminal domain of Fpr3 on serine, threonine, and tyrosine. Fpr3 represents the first phosphotyrosyl protein identified in S. cerevisiae that is not itself a protein kinase and is as yet the only known physiological substrate of Ptp1.