The transmembrane PTPase HPTP beta differs from its related family members in having a single rather than a tandemly duplicated cytosolic catalytic domain. We have expressed the 354-amino acid, 41-kDa human PTP beta catalytic fragment in Escherichia coli, purified it, and assessed catalytic specificity with a series of pY peptides. HPTP beta shows distinctions from the related LAR PTPase and T cell CD45 PTPase domains: it recognizes phosphotyrosyl peptides of 9-11 residues from lck, src, and PLC gamma with Km values of 2, 4, and 1 microM, some 40-200-fold lower than the other two PTPases. With kcat values of 30-205 s-1, the catalytic efficiency, kcat/Km, of the HPTP beta 41-kDa catalytic domain is very high, up to 5.7 x 10(7) M-1 s-1. The peptides corresponding to PLC gamma (766-776) and EGFR (1,167-1,177) phosphorylation sites were used for structural variation to assess pY sequence context recognition by HPTP beta catalytic domain. While exchange of the alanine residue at the +2 position of the PLC gamma (Km of 1 microM) peptide to lysine or aspartic acid showed little or no effect on substrate affinity, replacement by arginine increased the Km 35-fold. Similarly, the high Km value of the EGFR pY peptide (Km of 104 microM) derives largely from the arginine residue at the +2 position of the peptide, since arginine to alanine single mutation at the -2 position of the EGFR peptide decreased the Km value 34-fold to 3 microM. Three thiophosphotyrosyl peptides have been prepared and act as substrates and competitive inhibitors of these PTPase catalytic domains.