The transmembrane PTPase HPTPbeta differs from its related family members in having a single rather than a tandemly duplicated cytosolic catalytic domain. We have expressed the 354-amino acid, 41-kDa human PTPbeta catalytic fragment in Escherichia coli, purified it, and assessed catalytic specificity with a series of pY peptides. HPTPbeta shows distinctions from the related LAR PTPase and T cell CD45 PTPase domains: it recognizes phosphotyrosyl peptides of 9-11 residues from lck, src, and PLCgamma with K(m) values of 2, 4, and 1 muM, some 40-200-fold lower than the other two PTPases. With k(cat) values of 30-205 s-1 , the catalytic efficiency, k(cat)/K(m), of the HPTPbeta 41-kDa catalytic domain is very high, up to 5.7 x 10(7) M-1 s-1. The peptides corresponding to PLCgamma (766-776) and EGFR (1,167-1,177) phosphorylation sites were used for structural variation to assess pY sequence context recognition by HPTPbeta catalytic domain. While exchange of the alanine residue at the +2 position of the PLCgamma (K(m) of 1 muM) peptide to lysine or aspartic acid showed little or no effect on substrate affinity, replacement by arginine increased the K(m) 35-fold. Similarly, the high K(m) value of the EGFR pY peptide (K(m) of 104 muM) derives largely from the arginine residue at the +2 position of the peptide, since arginine to alanine single mutation at the -2 position of the EGFR peptide decreased the K(m) value 34-fold to 3 muM. Three thiophosphotyrosyl peptides have been prepared and act as substrates and competitive inhibitors of these PTPase catalytic domains.