Expression of a dominant-negative, catalytically inactive form of the nonreceptor protein-tyrosine phosphatase PTP1B in L-cells constitutively expressing N-cadherin results in loss of N-cadherin-mediated cell-cell adhesion. PTP1B interacts directly with the cytoplasmic domain of N-cadherin, and this association is regulated by phosphorylation of tyrosine residues in PTP1B. The following three tyrosine residues in PTP1B are potential substrates for tyrosine kinases: Tyr-66, Tyr-152, and Tyr-153. To determine the tyrosine residue(s) that are crucial for the cadherin-PTP1B interaction we used site-directed mutagenesis to create catalytically inactive PTP1B constructs bearing additional single, double, or triple mutations in which tyrosine was substituted by phenylalanine. Mutation Y152F eliminates binding to N-cadherin in vitro, whereas mutations Y66F and Y153F do not. Overexpression of the catalytically inactive PTP1B with the Y152F mutation in L-cells constitutively expressing N-cadherin has no effect on N-cadherin-mediated adhesion, and immunoprecipitation reveals that the mutant Y152F PTP1B does not associate with N-cadherin in situ. Furthermore, among cells overexpressing the Y152F mutant endogenous PTP1B associates with N-cadherin and is tyrosine-phosphorylated.