We have recently shown that protein tyrosine phosphatase 1B (PTP1B) associates with the docking protein p130Cas in 3Y1 rat fibroblasts. This interaction is mediated by a proline-rich sequence on PTP1B and the SH3 domain on p130Cas. Expression of wild-type PTP1B (WT-PTP1B), but not a catalytically competent, proline-to-alanine point mutant that cannot bind p130Cas (PA-PTP1B), causes substantial tyrosine dephosphorylation of p130Cas (F. Liu, D. E. Hill, and J. Chernoff, J. Biol. Chem. 271:31290-31295, 1996). Here we demonstrate that WT-, but not PA-PTP1B, inhibits transformation of rat 3Y1 fibroblasts by v-crk, -src, and -ras, but not by v-raf. These effects on transformation correlate with the phosphorylation status of p130Cas and two proteins that are associated with p130Cas, Paxillin and Fak. Expression of WT-PTP1B reduces formation of p130Cas-Crk complexes and inhibits mitogen-activated protein kinase activation by Src and Crk. These data show that transformation suppression by PTP1B requires a functional SH3 ligand and suggest that p130Cas may represent an important physiological target of PTP1B in cells.