Bone resorption by osteoclasts is essential for bone homeostasis. The kinase Src promotes osteoclast activity and is activated in osteoclasts by the receptor-type tyrosine phosphatase PTPROt. In other contexts, however, PTPROt can inhibit Src activity. Through in vivo and in vitro experiments, we show that PTPROt is bifunctional and can dephosphorylate Src both at its inhibitory residue Tyr527and its activating residue Tyr416. Whereas wild-type and PTPROt knockout mice exhibited similar bone masses, mice in which a putative C-terminal phosphorylation site, Tyr399, in endogenous PTPROt was replaced with phenylalanine had increased bone mass and reduced osteoclast activity. Osteoclasts from the knock-in mice also showed reduced Src activity. Experiments in cultured cells and in osteoclasts derived from both mouse strains demonstrated that the absence of phosphorylation at Tyr399caused PTPROt to dephosphorylate Src at the activating site pTyr416. In contrast, phosphorylation of PTPROt at Tyr399enabled PTPROt to recruit Src through Grb2 and to dephosphorylate Src at the inhibitory site Tyr527, thus stimulating Src activity. We conclude that reversible phosphorylation of PTPROt at Tyr399is a molecular switch that selects between its opposing activities toward Src and maintains a coherent signaling output, and that blocking this phosphorylation event can induce physiological effects in vivo. Because most receptor-type tyrosine phosphatases contain potential phosphorylation sites at their C termini, we propose that preventing phosphorylation at these sites or its consequences may offer an alternative to inhibiting their catalytic activity to achieve therapeutic benefit.