Cytokines activate the STAT (signal transducer and activator of transcription) family of latent cytoplasmic transcription factors by tyrosine phosphorylation. Tyrosine phosphorylated STATs translocate into the nucleus where they bind to DNA to activate transcription. The activity of STAT is dependent on tyrosine phosphorylation and its inactivation in the nucleus is accomplished by a previously unknown protein tyrosine phosphatase. Constitutive STAT activation has been associated with cancer. Using combined biochemical and genetic approaches, we have now identified TC45 as a protein phosphatase that can inactivate Stat1 in the nucleus. The overall goal of this proposal is to study the molecular mechanism, the regulation, and the specificity of STAT tyrosine dephosphorylation. These studies may enhance our ability to design rational therapeutic strategies employing cytokines. To study the molecular mechanism of STAT dephosphorylation, we will test if TC45 preferentially dephosphorylates Stat1 dimer or monomers by in vitro and in vivo interaction assays. Protein domains involved in the recognition of Stat1 by TC45 will be examined by mutational analysis and genetic reconstitution experiments. To study the regulation of STAT dephosphorylation, we will investigate if Stat1 DNA binding activity as well as Stat1-interacting proteins may regulate Stat1 dephosphorylation. The possible regulation of TC45 by cytokines at transcriptional or post-transcriptional levels will be analyzed. A mutant Stat1 resistant to tyrosine dephosphorylation will be examined for possible defects in the regulation of Stat1 dephosphorylation. To study the specificity of STAT dephosphorylation, we will further characterize the specificity of TC45-mediated STAT dephosphorylation in different types of TC45-null cells. We will test the hypothesis that TC45 has intrinsic substrate specificity toward STATs by biochemical assays and domain-swapping analysis. The dephosphorylation of other STATs will be examined.