The Bcr-Abl protein-tyrosine kinase is implicated in the development of chronic myeloid leukemia. The potential role of protein-tyrosine phosphatase in the regulation of Bcr-Abl signaling was explored. First, expression patterns of tyrosine phosphatases in leukemic cell lines were investigated using degenerate primers for reverse transcription-PCR followed by cloning and sequencing of the cDNA. Distinct patterns of distribution of phosphatase were found in erythroid and myeloid leukemic cell lines. Whereas some phosphatases were ubiquitously expressed, others were limited to specific cell types. Surprisingly, a previously cloned "lymphocyte-specific" phosphatase, Lyp, was frequently detected in a number of myeloid cell lines as well as normal granulocytes and monocytes. Lyp was localized to the cytosol, and overexpression of Lyp caused reduction in the phosphorylation levels of multiple proteins in KCL22 chronic myeloid leukemia blast cells including Cbl, Bcr-Abl, Erk1/2, and CrkL. Co-expression of Lyp and Bcr-Abl in Cos-7 cells resulted in decreased levels of Bcr-Abl, Grb2, and Myc. Overexpression of Lyp markedly suppressed anchorage-independent clonal growth of KCL22 cells. Taken together, the data suggest that Lyp may play an antagonistic role in signaling by the Bcr-Abl fusion protein.