Extracellular matrix and growth factors cooperate to regulate signaling pathways and gene transcription in adherent cells. However, the mechanism of extracellular matrix signaling is poorly defined. In mammary gland, the expression of milk protein genes is controlled by cross-talk between signals derived from the basement membrane protein, laminin, and the lactogenic hormone, prolactin. Signals from basement membrane are transduced by  1 integrins and are required for prolactin to activate DNA binding of the milk protein gene transcription factor, Stat5. Here we show that basement membrane is necessary for tyrosine phosphorylation of the prolactin receptor and thus directly affects cytokine signaling and differentiation at the level of the plasma membrane. Prolactin does not induce tyrosine phosphorylation of its receptor, Jak2, or Stat5 in nondifferentiated breast epithelia cultured on collagen I, and we show that this is due to a vanadate-sensitive activity that inhibits the prolactin pathway. We suggest that protein-tyrosine phosphatases are novel targets for regulation by extracellular matrix and in mammary cells represent an additional control to the requirement of integrins for milk protein production.Cell behavior is controlled by a network of signals derived from growth and differentiation factors as well as from the local cellular environment. These signals are interpreted by appropriate receptors and converted into intracellular pathways that modulate transcriptional or post-transcriptional events. Migration, proliferation, survival, and differentiation are strongly influenced by cell interactions with the extracellular matrix (ECM) 1 (1). For example, integrins determine the activity of both Ras-mitogen-activated protein kinase and phosphatidylinositol 3Ј-kinase mediated growth factor responses, and cell-ECM interactions contribute to cyclin activation thereby regulating cell cycle entry (2-6). However, the mechanism for this ligand-induced signaling cross-talk has not been established. Many signal transduction pathways, including those conveyed by ECM-integrin interactions are controlled by protein-tyrosine kinases (PTKs) (7). Homeostasis of signaling requires negative regulation through protein-tyrosine phosphatases (PTPs) (8, 9), and these enzymes are therefore of potential significance in the control of ECM signaling.In the breast, epithelial cell interactions with basement membrane (BM) control the prolactin-dependent expression of milk protein genes (10, 11). Both laminin-1 and  1 integrins are required for differentiation of mammary cells (12, 13) and, together with prolactin, direct milk protein gene transcription. The molecular details of the prolactin signaling pathway were first described in the rat lymphoma cell line, Nb2, which requires prolactin for proliferation. Ligation of the prolactin receptor (PrlR) results in induction of the associated PTK activity, Jak2 (14 -16). This leads to activation of Stat transcription factors that recognize specific DNA sequence motifs in the promoters...