The two tandem homologous catalytic domains of PTP alpha possess different kinetic properties, with the membrane proximal domain (D1) exhibiting much higher activity than the membrane distal (D2) domain. Sequence alignment of PTP alpha-D1 and -D2 with the D1 domains of other receptor-like PTPs, and modeling of the PTP alpha-D1 and -D2 structures, identified two nonconserved amino acids in PTP alpha-D2 that may account for its low activity. Mutation of each residue (Val-536 or Glu-671) to conform to its invariant counterpart in PTP alpha-D1 positively affected the catalytic efficiency of PTP alpha-D2 toward the in vitro substrates para-nitrophenylphosphate and the phosphotyrosyl-peptide RR-src. Together, they synergistically transformed PTP alpha-D2 into a phosphatase with catalytic efficiency for para-nitrophenylphosphate equal to PTP alpha-D1 but not approaching that of PTP alpha-D1 for the more complex substrate RR-src, In vivo, no gain in D2 activity toward p59(fyn) was effected by the double mutation. Alteration of the two corresponding invariant residues in PTPa-D1 to those in D2 conferred Da-like kinetics toward all substrates, Thus, these two amino acids are critical for interaction with phosphotyrosine but not sufficient to supply PTP alpha-D2 with a D1-like substrate specificity for elements of the phosphotyrosine microenvironment present in RR-src and p59(fyn). Whether the structural features of D2 can uniquely accommodate a specific phosphoprotein substrate or whether D2 has an alternate function in PTP alpha remains an open question.