Protein-tyrosine phosphatase PTPN3 is a membrane-associated non-receptor protein-tyrosine phosphatase. PTPN3 contains a N-terminal FERM domain, a middle PDZ domain, and a C-terminal phosphatase domain. Upon co-expression of PTPN3, the level of human hepatitis B viral (HBV) RNAs, 3.5 kb, 2.4/2.1 kb, and 0.7 kb transcribed from a replicating HBV expression plasmid is significantly reduced in human hepatoma HuH-7 cells. When the expression of endogenous PTPN3 protein is diminished by specific small interfering RNA, the expression of HBV genes is enhanced, indicating that the endogenous PTPN3 indeed plays a suppressive role on HBV gene expression. PTPN3 can interact with HBV core protein. The interaction is mediated via the PDZ domain of PTPN3 and the carboxyl-terminal last four amino acids of core. Either deletion of PDZ domain of PTPN3 or substitution of PDZ ligand in core has no effect on PTPN3-mediated suppression. These results clearly show that the interaction of PTPN3 with core is not required for PTPN3 suppressive effect. Mutation of (359)serine and (835)serine of 14-3-3beta binding sites to alanine, which slightly reduces the interaction with 14-3-3beta, does not influence the PTPN3 effect. In contrast, mutation of the invariant (842)cysteine residue in phosphatase domain to serine, which makes the phosphatase activity inactive, does not change its subcellular localization and interaction with core or 14-3-3beta, but completely abolishes PTPN3-mediated suppression. Furthermore, deletion of FERM domain does not affect the phosphatase activity or interaction with 14-3-3beta, but changes the subcellular localization from cytoskeleton-membrane interface to cytoplasm and nucleus, abolishes binding to core, and diminishes the PTPN3 effect on HBV gene expression. Taken together, these results demonstrate that the phosphatase activity and FERM domain of PTPN3 are essential for its suppression of HBV gene expression.