The plant oncogene rolB from Agrobacterium rhizogenes elicits differentiation and growth of neoplastic roots (hairy roots) in dicotyledonous plants. rolB-transformed plant cells show a sensitivity to auxin several order of magnitude higher than normal, and an increased binding capability to this most studied plant growth regulator. The oncogene rolB may thus represent an important tool in elucidating the still elusive mechanism of auxin signal perception/transduction and in shedding light on the role of this plant hormone in the control of plant growth and differentiation. So far, however, all attempts to clarify the biochemical activity and subcellular localization of the rolB gene product have been inconclusive. Here we show that the RolB protein overproduced in Escherichia coli has protein tyrosine phosphatase activity, and that, in transformed plant cells, is localised on the plasma membrane.