To study the regulation of tyrosine phosphorylation/dephosphorylation in Saccharomyces cerevisiae, a protein tyrosine phosphatase (PTPase) was cloned by the polymerase chain reaction (PCR). Conserved amino acid sequences within the mammalian PTPases were used to design primers which generated a yeast PCR fragment. The sequence of the PCR fragment encoded a protein with homology to the mammalian PTPases. The PCR fragment was used to identify the yeast PTP1 gene which has an open reading frame encoding a 335-amino acid residue protein. This yeast PTPase shows 26% sequence identity to the rat PTPase, although highly conserved residues within the mammalian enzymes are invariant in the yeast protein. The yeast PTP1 is physicallt linked to the 5'-end of a heat shock gene SSB1. This yeast PTP1 gene was expressed in Escherichia coli and obtained in a highly purified form by a single affinity chromatography step. The recombinant yeast PTPase hydrolyzed phosphotyrosine containing substrates approximately 1000 times faster than a phosphoserine containing substrate. Gene disruption of yeast PTP1 has no visible effect on vegetative growth.