Receptor protein tyrosine phosphatases (RPTPs) control many aspects of nervous system development. At the Drosophila neuromuscular junction (NMJ), regulation of synapse growth and maturation by the RPTP LAR depends on catalytic phosphatase activity and on the extracellular ligands Syndecan and Dally-like. We show here that the function of LAR in controlling R7 photoreceptor axon targeting in the visual system differs in several respects. The extracellular domain of LAR important for this process is distinct from the domains known to bind Syndecan and Dally-like, suggesting the involvement of a different ligand. R7 targeting does not require LAR phosphatase activity, but instead depends on the phosphatase activity of another RPTP, PTP69D. In addition, a mutation that prevents dimerization of the intracellular domain of LAR interferes with its ability to promote R7 targeting, although it does not disrupt phosphatase activity or neuromuscular synapse growth. We propose that LAR function in R7 is independent of its phosphatase activity, but requires structural features that allow dimerization and may promote the assembly of downstream effectors.synapse ͉ neuromuscular junctions ͉ dimerization ͉ wedge R eceptor protein tyrosine phosphatases (RPTPs) are required for nervous system development in both vertebrates and invertebrates (1). Of the six Drosophila RPTPs, Leukocyte antigen-related (LAR) has been studied in most detail due to its non-redundant role in several developmental processes. In Lar mutant embryos, motor neurons in the intersegmental nerve b (ISNb) fail to innervate the appropriate muscles and aberrantly track along the ISN (2). LAR has two distinct functions at the synapses formed by larval motor neurons on their target muscles. Synapse size as defined by the number of synaptic boutons present at these larval neuromuscular junctions (NMJs) is proportional to Lar dosage; and LAR controls active zone morphogenesis and thus synaptic strength (3). In the visual system, LAR enables photoreceptor axons to establish connections to the correct synaptic partners. Photoreceptors R1-R6 project into the lamina, where the axons from a single ommatidium defasciculate and connect to six different laminar cartridges; this defasciculation requires Lar (4). Photoreceptors R7 and R8, which mediate color vision, project beyond the lamina to terminate in two distinct layers of the medulla, R8 in M3 and R7 in the deeper M6 layer (5). In Lar mutants, most R7 axons terminate inappropriately in M3, the same layer as R8 (4, 6).LAR and its vertebrate homologues PTP and PTP␦ are type IIa RPTPs, which have two intracellular phosphatase domains (D1 and D2) and extracellular Ig (Ig) and fibronectin type III (FNIII) domains. The membrane-distal D2 domains of such RPTPs show no phosphatase activity on artificial substrates in vitro (7-9). Nevertheless, the LAR D2 domain is essential for R7 targeting, where it may act by recruiting the scaffolding protein Liprin-␣ (10) or regulating the activity of the D1 domain (8). An important class...