A human protein tyrosine phosphatase containing two src homology 2 (SH2) domains (SH-PTP2) was expressed in Escherichia coli under T7 promoter control and purified to near homogeneity. The purified protein, with molecular mass of 68 kDa on SDS-polyacrylamide gel electrophoresis, was identified as SH-PTP2 by its protein tyrosine phosphatase activity and N-terminal amino acid sequence analysis. Its protein tyrosine phosphatase activity was sensitive to pH and salt concentration. Whereas its optimum pH for the low molecular weight substrate para-nitrophenyl phosphate is 5.6, the pH optima for peptide substrates were shifted toward neutral. With the artificial protein substrate reduced, carboxyamidomethylated, and maleylated lysozyme, it displays 2000-fold lower Km (1.7 microM) and 2.4-fold higher kcat (0.11 s-1) than with para-nitrophenyl phosphate. Among the phosphopeptides from autophosphorylation sites of receptors for epidermal growth factor and platelet-derived growth factor, SH-PTP2 displayed high activity toward phosphopeptides corresponding to pY992 of the epidermal growth factor receptor and pY1009 and pY1021 of the platelet-derived growth factor receptor. In further enzymatic studies with phosphopeptides corresponding to pY1009, SH-PTP2 showed nonlinear Line-weaver-Burk double-reciprocal plots, suggesting that the phosphopeptide corresponding to pY1009 may have a substrate and allosteric effect.