Interferons (IFNs) induce early response genes by stimulating Janus family (Jak) tyrosine kinases, leading to tyrosine phosphorylation of Stat (signal transducer and activator of transcription) proteins. Previous studies demonstrated that a protein-tyrosine phosphatase (PTP) is required for activation of the ISGF3 transcription complex by IFN␣/, but the specific PTP responsible remained unidentified. We now show that the SH2 domain containing tyrosine phosphatase PTP1D (also designated as SHPTP2, SHPTP3, PTP2C, or Syp) is constitutively associated with the IFN␣/ receptor and becomes tyrosine-phosphorylated in response to ligand. Furthermore, transient expression of a phosphatase-inactive mutant or the COOH-terminal SH2 domain of PTP1D causes a dominant negative effect on IFN␣/-induced early response gene expression. These results provide strong evidence that PTP1D functions as a positive regulator of the IFN␣/-induced Jak/Stat signal transduction pathway.Interferons as well as many other cytokines and growth factors stimulate the expression of early response genes by inducing the tyrosine phosphorylation of SH2-containing transcription factors termed Stats (1-5), a process that involves the activation and tyrosine phosphorylation of members of the Janus family of protein-tyrosine kinases (Jaks) (6 -9). Tyrosine phosphorylation of the Stat proteins causes them to either homo-or heterodimerize and to translocate to the nucleus, where they interact with enhancer elements in a variety of promoters to initiate transcription (10,11). Serine phosphorylation of Stat1 by mitogen-activated protein kinase (MAPK, ERK2) is required in addition to tyrosine phosphorylation for maximum transcriptional activation (12, 13).Several components of the IFN␣/ 1 signaling pathway have been identified and molecularly cloned, such as the two subunits (␣ and ) of the IFN␣/ receptor (14 -16). Binding of IFN␣/ to its receptor causes the rapid activation of the Jak tyrosine kinases Jak1 and Tyk2 (6, 7) which results in tyrosine phosphorylation of both Stat1␣ (p91) and Stat2 (p113) (1,17) and the formation of at least two transcription factor complexes. One complex, composed of a heterotrimer of Stat1␣, Stat2, and the DNA binding component p48 (ISGF3␥), binds to interferon-stimulated response elements (ISREs) (18,19), whereas Stat1␣ homodimers bind to ␥ response region (GRR) elements (20).Although much attention has been devoted to the tyrosine kinases involved in Stat activation, the role of tyrosine phosphatases in IFN␣/ signal transduction is less understood. Evidence from both in vitro and in vivo studies indicated that tyrosine phosphatases can act as positive as well as negative regulators of the IFN␣/-induced Jak/Stat pathway (17,21,22). Recently, we were able to demonstrate that the SH2 domain containing tyrosine phosphatase PTP1C (SHPTP1, HCP, or SHP) functions as a suppressor of IFN␣/ signal transduction in hematopoietic cells by specific down-modulation of Jak1 tyrosine phosphorylation (23). Studies of Stat activation by...