pp120, a plasma membrane glycoprotein, is phosphorylated on Tyr488 by the insulin receptor tyrosine kinase. This requires basal phosphorylation on Ser503 by cAMP-dependent serine kinase. Phe513, the other tyrosine residue in the intracellular domain, does not undergo insulin-stimulated phosphorylation. Phe488 mutation abolished basal and insulin-stimulated phosphorylation, whereas, Phe513 plus Phe488 mutation markedly decreased the effect of insulin on pp120 phosphorylation without altering basal phosphorylation in intact cells. To investigate whether basal phosphorylation of pp120 is regulated by a phosphatase activity that requires Tyr513, in vitro phosphorylation assays using partially purified glycoproteins from stably transfected NIH 3T3 cells were performed in the absence of phosphatase inhibitors. Wild-type pp120 was promptly dephosphorylated, whereas, Y513F pp120 was not. Decreasing pp120 expression by antisense cDNA transfection proportionally decreased phosphatase activity in H4-II-E hepatoma cells measured by the p-nitrophenyl phosphate assay. This suggests that pp120 is associated with phosphatase activity that requires an intact Tyr513 residue.