A physiologically relevant response to insulin, stimulation of prolactin promoter activity in GH4 pituitary cells, was used as an assay to study the specificity of protein-tyrosine phosphatase function. Receptor-like protein-tyrosine phosphatase alpha (RPTPalpha) blocks the effect of insulin to increase prolactin gene expression but potentiates the effects of epidermal growth factor and cAMP on prolactin promoter activity. RPTPalpha was the only protein-tyrosine phosphatase tested that did this. Thus, the effect of RPTPalpha on prolactin-chloramphenicol acetyltransferase (CAT) promoter activity is specific by two criteria. A number of potential RPTPalpha targets were ruled out by finding (a) that they are not affected or (b) that they are not on the pathway to insulin-increased prolactin-CAT activity. The negative effect of RPTPalpha on insulin activation of the prolactin promoter is not due to reduced phosphorylation or kinase activity of the insulin receptor or to reduced phosphorylation of insulin receptor substrate-1 or Shc. Inhibitor studies suggest that insulin-increased prolactin gene expression is mediated by a Ras-like GTPase but is not mitogen-activated protein kinase dependent. Experiments with inhibitors of phosphatidylinositol 3-kinase suggest that insulin-increased prolactin-CAT expression is phosphatidylinositol 3-kinase-independent. These results suggest that RPTPalpha may be a physiological regulator of insulin action.