Full-length protein tyrosine phosphatase 1C (PTP1C), the catalytic domain of PTP1C (delta PTP1C), and the N-terminal SH2 domain truncated PTP1C (delta NPTP1C) were overexpressed in Escherichia coli and purified to near homogeneity. Various phosphorylated states of the synthetic phosphotyrosyl peptide TRDIYETDYYRK (IRP), corresponding to the major insulin receptor autophosphorylation sites, were used as substrates for the PTPs. There was no indication for selective dephosphorylation of any of the three phosphotyrosyl residues from the triphosphotyrosyl IRP. Kinetic studies were carried out using all seven different phosphotyrosyl IRPs. Saturation kinetics were observed for PTP1C using the triphosphotyrosyl IRP only. In contrast, for delta PTP1C, saturation was achieved for all seven phosphotyrosyl IRPs. The best substrate for delta PTP1C was the triphosphotyrosyl IRP possessing a Km of approximately 1.6 microM, about 3-4-fold lower than either the mono- or diphosphotyrosyl IRPs. However, in contrast to delta PTP1C, PTP1C had a 22-fold lower affinity for triphosphotyrosyl IRP. Furthermore, deletion of a single N-terminal SH2 domain increased the affinity of the enzyme for the triphosphotyrosyl IRP to a value similar to that obtained with delta PTP1C. The pH optima for all three enzyme constructs were very similar and could not account for the observed change in substrate affinity between the three enzymes. These results suggest that the SH2 domain of PTP1C exerts an inhibitory effect on its PTP activity.