The low molecular weight protein tyrosine phosphatase (LMW-PTP) is a ubiquitously expressed enzyme with several proposed roles in cell signaling. Previously, two tyrosine phosphorylation modifications of LMW-PTP at sites Tyr-131 and Tyr-132 in response to growth factor stimulation have been mapped and suggested to stimulate LMW-PTP phosphatase activity. Biochemical analysis of tyrosine phosphorylation of a tyrosine phosphatase is challenging because of the intrinsic instability of these modifications. Here we used expressed protein ligation to site-specifically incorporate a phosphotyrosine mimic (phosphonomethylenephenylalanine, Pmp) at the Tyr-131 and Tyr-132 positions and measured the catalytic activity of these semisynthetic LMW-PTPs. The phosphonate-modified LMW-PTPs were 10- to 23-fold less active in dephosphorylating phosphotyrosine peptides derived from the PDGF receptor and p190RhoGap, two putative cellular substrates. These findings suggest the first example of a tyrosine phosphatase that is inhibited by tyrosine phosphorylation and provide a new model for the regulation of LMW-PTP and its role in cell adhesion.