Protein tyrosine phosphorylation, which plays an important role in synapse formation at the neuromuscular junction, appears to be regulated by presynaptic neurons. Innervation increases whereas denervation decreases the phosphotyrosine content at the neuromuscular junction. The innervation-dependent tyrosine phosphorylation may result from elevated activity of protein tyrosine kinases; alternatively innervation may down-regulate the protein tyrosine phosphatase activity in the skeletal muscle. To investigate the possible neuronal control of protein tyrosine phosphatase activity at the neuromuscular junction, we have characterized protein tyrosine phosphatase activity in rat skeletal muscle and studied the effects of surgical denervation on the phosphatase activity. Protein tyrosine phosphatase activity in the skeletal muscle, assayed using src [32P]-phosphorylated myelin basic protein as a substrate, was both time- and protein concentration-dependent and was inhibited by micromolar concentrations of vanadate and zinc ion, both of which are known to inhibit tyrosine phosphatases specifically. It was not affected, however, by chemicals known to inhibit acid and alkaline phosphatases or serine/threonine phosphatases. Surgical denervation caused an increase in protein tyrosine phosphatase activity in rat hindlimb muscles. The increase in phosphatase activity reached a maximum (2-fold above the normal) 4 days post-denervation and maintained a plateau for up to 24 days. The biochemical properties of the phosphatase activity in denervated muscle were similar to those of the phosphatase activity in the innervated muscles. These results demonstrate that protein tyrosine phosphatase activity in skeletal muscle is regulated by motoneurons.