PTP2C, a widely distributed protein tyrosine phosphatase (PTP) containing two SH2 domains, was expressed as a recombinant enzyme in Escherichia coli and purified to near homogeneity. The purified enzyme and a truncated form lacking the SH2 domains (delta SH2-PTP2C) have been characterized with four commonly used substrates. Both forms showed pH optima of around neutrality for protein substrates but below 5.5 for a peptide substrate and para-nitrophenylphosphate. The dependence of the enzymes on ionic strength varied with the nature of the substrates involved. Like its analog PTP1C, PTP2C displayed a specific activity of less than 0.1% of that observed with other known PTPs toward protein substrates. Deletion of the SH2 domains increased its activity by 12-45-fold, depending on the substrates used. Limited trypsinolysis which cleaved about 4 kDa from the carboxyl terminus resulted in a 2-5-fold activation of the full-length enzyme but was essentially without effect on the truncated enzyme. Both forms showed similar responses to effectors including activators (e.g. anionic phospholipids) or inhibitors (e.g. vanadate, molybdate, or Zn2+). PTP2C and delta SH2-PTP2C were phosphorylated in vitro by mitogen-activated protein kinase, protein kinase C, and various protein tyrosine kinases; in the latter case, they underwent autodephosphorylation. No significant effect of the phosphorylation reactions on enzyme activity could be observed in vitro.