Chronic myelogenous leukemia is typified by constitutive activation of the c-abl kinase as a result of its fusion to the breakpoint cluster region (BCR). Because the truncated isoform of protein-tyrosine phosphatase receptor-type O (PTPROt) is specifically expressed in hematopoietic cells, we tested the possibility that it could potentially dephosphorylate and inactivate the fusion protein bcr/abl. Ectopic expression of PTPROt in the chronic myelogenous leukemia cell line K562 indeed resulted in hypophosphorylation of bcr/abl and reduced phosphorylation of its downstream targets CrkL and Stat5, confirming that PTPROt could inactivate the function of bcr/abl. Furthermore, the expression of catalytically active PTPROt in K562 cells caused reduced proliferation, delayed transition from G0/G1 to S phase, loss of anchorage independent growth, inhibition of ex vivo tumor growth, and increased their susceptibility to apoptosis, affirming that this tyrosine phosphatase can revert the transformation potential of bcr/abl. Additionally, the catalytically inactive PTPROt acted as a trapping mutant that was also able to inhibit anchorage independence and facilitate apoptosis of K562 cells. The inhibitory action of PTPROt on bcr/abl was also confirmed in a murine myeloid cell line overexpressing bcr/abl. PTPROt expression was suppressed in K562 cells and was relieved upon treatment of the cells with 5-azacytidine, an inhibitor of DNA methyltransferase, with concomitant hypomethylation of the PTPRO CpG island. These data demonstrate that suppression of PTPROt by promoter methylation could contribute to the augmented phosphorylation and constitutive activity of its substrate bcr/abl and provide a potentially significant molecular therapeutic target for bcr/abl-positive leukemia.