Src family tyrosine kinases (SFKs) function in multiple signaling pathways, raising the question of how appropriate regulation and substrate choice are achieved. SFK activity is modulated by several protein-tyrosine phosphatases, among which RPTP␣ and SHP2 are the best established. We studied how RPTP␣ affects substrate specificity and regulation of c-Src and Fyn in response to epidermal growth factor and platelet-derived growth factor. We find that RPTP␣, in a growth factor-specific manner, directs the specificity of these kinases toward a specific subset of SFK substrates, particularly the focal adhesion protein Paxillin and the lipid raft scaffolding protein Cbp/PAG. A significant fraction of RPTP␣ is present in lipid rafts, where its targets Fyn and Cbp/PAG reside, and growth factor-mediated SFK activation within this compartment is strictly dependent on RPTP␣. Forced concentration of RPTP␣ into lipid rafts is compatible with activation of Fyn. Finally, RPTP␣-induced phosphorylation of Paxillin and Cbp/PAG induces recruitment of the SFK inhibitory kinase Csk, indicative of negative feedback loops limiting SFK activation by RPTP␣. Our findings indicate that individual SFK-controlling PTPs play important and specific roles in dictating SFK substrate specificity and regulatory mechanism.