A transiently-expressed mitogen-inducible gene has been isolated from an activated T cell cDNA library that appears to encode a phosphotyrosine phosphatase (PTPase). We have designated this gene CAP-1 for cellular activation-related phosphatase. DNA sequence analysis has revealed a 311 amino acid peptide that contains a consensus tyrosine phosphatase active site at the carboxy terminus, but is otherwise unique in sequence, possibly defining a new class of PTPase. No transmembrane domain is apparent, suggesting that CAP-1 belongs to the soluble class of PTPases. CAP-1 mRNA is expressed in mitogen-activated or growing cells of various lineages. Immunoprecipitation analyses in activated T cells demonstrate a 32 kD protein which is induced and maximally expressed during the G1 phase of the cell cycle, and has an apparent half-life of 30 minutes. Three additional non-covalently associated proteins coprecipitate with CAP-1 and may represent functional modulators of CAP-1 activity. As tyrosine phosphorylation is a major control mechanism in growth, the possible role of CAP-1 in regulating cell cycle progression is being addressed.