Cytolysis of target cells by natural killer (NK) cells and by some cytotoxic T cells occurs unless prevented by inhibitory receptors that recognize MHC class I on target cells. Human NK cells express a p58 inhibitory receptor specific for HLA-C. We report association of the tyrosine phosphatase HCP with the p58 receptor in NK cells. HCP association was dependent on tyrosine phosphorylation of p58. Phosphotyrosyl peptides corresponding to the p58 tail bound and activated HCP in vitro. Furthermore, introduction of an inactive mutant HCP into an NK cell line prevented the p58-mediated inhibition of target cell lysis. These data imply that the inhibitory function of p58 is dependent on its tyrosine phosphorylation and on recruitment and activation of HCP.