A missense single-nucleotide polymorphism in the gene encoding the lymphoid-specific tyrosine phosphatase (Lyp) has been identified as a causal factor in a wide spectrum of autoimmune diseases. Interestingly, the autoimmune-predisposing variant of Lyp appears to represent a gain-of-function mutation, implicating Lyp as an attractive target for the development of effective strategies for the treatment of many autoimmune disorders. Unfortunately, the precise biological functions of Lyp in signaling cascades and cellular physiology are poorly understood. Identification and characterization of Lyp substrates will help define the chain of molecular events coupling Lyp dysfunction to diseases. In the current study, we identified consensus sequence motifs for Lyp substrate recognition using an "inverse alanine scanning" combinatorial library approach. The intrinsic sequence specificity data led to the discovery and characterization of SKAP-HOM, a cytosolic adaptor protein required for proper activation of the immune system, as a bona fide Lyp substrate. To determine the molecular basis for Lyp substrate recognition, we solved crystal structures of Lyp in complex with the consensus peptide as well as the phosphopeptide derived from SKAP-HOM. Together with the biochemical data, the structures define the molecular determinants for Lyp substrate specificity and provide a solid foundation upon which novel therapeutics targeting Lyp can be developed for multiple autoimmune diseases.Protein-tyrosine phosphorylation-mediated signal transduction is essential for a wide range of eukaryotic functions, including cell proliferation, differentiation, migration, apoptosis, and the immune responses (1). This signaling mechanism is often dysregulated in human diseases, due to aberrant activity of the enzymes involved in the regulation of protein tyrosine phosphorylation status (1, 2). Thus, a comprehensive understanding of the physiological roles of protein tyrosine phosphorylation and how this process is abrogated in the pathogenesis of human diseases must necessarily include characterization of proteintyrosine phosphatases (PTPs), 4 in addition to protein-tyrosine kinases.The lymphoid-specific tyrosine phosphatase (Lyp) has garnered tremendous interest due to the observation that a missense C1858T single nucleotide polymorphism in the gene (PTPN22) encoding Lyp is associated with multiple autoimmune disorders, including type I diabetes (3), rheumatoid arthritis (4, 5), Graves disease (6), and systemic lupus erythematosus (7). Lyp expression is restricted to human T cells, B cells, and macrophages (8). Lyp exerts an inhibitory effect on the proximal T cell receptor signaling pathways, probably through dephosphorylation of the Lck and ZAP-70 kinases (9 -11). The C1858T single nucleotide polymorphism changes Arg 620 into a Trp within the first Pro-rich region in the C terminus of Lyp, leading to loss of Lyp binding to the Src homology 3 domain of the Src C-terminal kinase (Csk) (3, 4). Importantly, the autoimmune-predisposing variant of...