The phosphorylation state of a given tyrosine residue is determined by both protein tyrosine kinase (PTK) and protein tyrosine phosphatase (PTP) activities. However, little is known about the functional interaction of these opposing activities at the level of an identified effector molecule. G protein-coupled receptors (GPCRs), including the m1 muscarinic acetylcholine receptor (mAChR), regulate a tyrosine kinase activity that phosphorylates and suppresses current generated by the Kv1.2 potassium channel. We examined the possibility that PTPs also participate in this signaling pathway since the tyrosine phosphatase inhibitor vanadate increases the extent of both Kv1.2 phosphorylation and suppression. We show that an endogenous transmembrane tyrosine phosphatase, receptor tyrosine phosphatase alpha (RPTPalpha), becomes tyrosine phosphorylated and co-immunoprecipitates with Kv1.2 in a manner dependent on m1 receptor activation. The N- and C-termini of Kv1.2 are shown to bind RPTPalpha in vitro. Overexpression of RPTPalpha in Xenopus oocytes increases resting Kv1.2 current. Biochemical and electrophysiological analysis reveals that recruiting RPTPalpha to Kv1.2 functionally reverses the tyrosine kinase-induced phosphorylation and suppression of Kv1.2 current in mammalian cells. Taken together, these results identify RPTPalpha as a new target of m1 mAChR signaling and reveal a novel regulatory mechanism whereby GPCR-mediated suppression of a potassium channel depends on the coordinate and parallel regulation of PTK and PTP activities.