Signaling through receptor protein tyrosine phosphatases (RPTPs) can influence diverse processes, including axon development, lymphocyte activation, and cell motility. The molecular regulation of these enzymes, however, is still poorly understood. In particular, it is not known if, or how, the dimerization state of RPTPs is related to the binding of extracellular ligands. Protein tyrosine phosphatase (PTP) is an RPTP with major isoforms that differ in their complements of fibronectin type III domains and in their ligand-binding specificities. In this study, we show that PTP forms homodimers in the cell, interacting at least in part through the transmembrane region. Using this knowledge, we provide the first evidence that PTP ectodomains must be presented as dimers in order to bind heterophilic ligands. We also provide evidence of how alternative use of fibronectin type III domain complements in two major isoforms of PTP can alter the ligand binding specificities of PTP ectodomains. The data suggest that the alternative domains function largely to change the rotational conformations of the amino-terminal ligand binding sites of the ectodomain dimers, thus imparting novel ligand binding properties. These findings have important implications for our understanding of how heterophilic ligands interact with, and potentially regulate, RPTPs.Many cell-signaling events are regulated through reversible tyrosine phosphorylation of proteins. This phosphorylation cycle is controlled by the counterbalanced actions of two enzyme families, protein tyrosine kinases and protein tyrosine phosphatases (PTPs), each of which has cytoplasmic and receptorlike members. While the regulation and actions of many receptor protein tyrosine kinases (RTKs) are well characterized, our related understanding of the receptor-type PTPs (RPTPs) remains far from complete.Twenty-one human RPTPs have been identified, and highly conserved orthologues and homologues exist in vertebrates and invertebrates (3). Several of these RPTPs have particularly well-documented roles in neural development (16,26,40), cell adhesion, and motility (7, 51). RPTPs are type I transmembrane proteins with varied extracellular domain structures, and in many cases, it is still unclear what their ligands are. It is also unclear how, and in most cases if, such ligands directly control RPTP activity. Moreover, although RTKs are obligate dimers during ligand activation and signaling, dimerization has been demonstrated for only a small number of RPTPs, and we have only a few clues as to how this dimerization is linked to signaling control. Furthermore, it is not clear whether ligand binding is influenced by, or influences, the RPTP dimerization state.The RPTPs PTP␣, Sap-1, and CD45 form dimers normally in the cell, and this dimerization can block the catalytic action of these enzymes (23,24,64). PTP␣ and CD45 may be inhibited by steric constraints, possibly through an inhibitory wedge structure (8, 29), although this is still controversial (35). With PTP␣ and Sap-1, there is also e...