The reversible tyrosine phosphorylation of proteins, modulated by the coordinated actions of protein-tyrosine kinases and protein-tyrosine phosphatases (PTPs), regulates the cellular response to a wide variety of stimuli. It is established that protein kinases possess discrete sets of substrates and that substrate recognition is often dictated by the presence of consensus phosphorylation sites. Here, we have extended this concept to the PTPs and demonstrated that (E/D)-pY-pY-(R/K) is a consensus substrate recognition motif for PTP1B. We have shown that JAK2 and TYK2 are substrates of PTP1B and that the substrate recognition site within theses kinases is similar to the site of dephosphorylation previously identified within the insulin receptor. A substrate-trapping mutant of PTP1B formed a stable interaction with JAK2 and TYK2 in response to interferon stimulation. Expression of wild type or substrate-trapping mutant PTP1B inhibited interferon-dependent transcriptional activation. Finally, mouse embryo fibroblasts deficient in PTP1B displayed subtle changes in tyrosine phosphorylation, including hyperphosphorylation of JAK2. The closely related JAK family member, JAK1, which does not match the consensus dephosphorylation site, was not recognized as a substrate. These data illustrate that PTP1B may be an important physiological regulator of cytokine signaling and that it may be possible to derive consensus substrate recognition motifs for other members of the PTP family, which may then be used to predict novel physiological substrates.