Low molecular weight phosphotyrosine-protein phosphatase (LMW-PTP) shares no general sequence homology with other PTPs, although it has an active site sequence motif CXXXXXR and a reaction mechanism identical to those of all PTPs. The main function of this enzyme is the down-regulation of platelet-derived growth factor and insulin receptors. Both human LMW-PTP isoenzymes are inactivated by H2O2. The enzymes are protected from inactivation by Pi, a competitive inhibitor, suggesting that the H2O2 reaction is directed to active site. Analysis of free thiols performed on the inactivated enzymes demonstrates that only two out of the eight LMW-PTP cysteines are modified. Time-course high performance liquid chromatography-electrospray mass spectrometry, together with specific radiolabeling and tryptic fingerprint analyses, enables us to demonstrate that H2O2 causes the oxidation of Cys-12 and Cys-17 to form a disulfide bond. Because both residues are localized into the active site region, this modification inactivates the enzyme. Fluorescence spectroscopy experiments suggest that the fold of the enzyme is modified during oxidation by H2O2. Because a physiological concentration of H2O2 produces enzyme inactivation and considering that the activity is restored by reduction with low molecular weight thiols, we suggest that oxidative stress conditions and other processes producing hydrogen peroxide regulate the LMW-PTP in the cell.