Protein-tyrosine phosphatases (PTPs) are vital for regulating tryosine phosphorylation in many processes, including growth and differentiation. The regulation of receptor-like PTP (RPTP) activity remains poorly understood, but based on the crystal structure of RPTPalpha domain 1 we have proposed that dimerization can negatively regulate activity, through the interaction of an inhibitory 'wedge' on one monomer with the catalytic cleft of domain 1 in the other monomer. Here we show that dimerization inhibits the activity of a full-length RPTP in vivo. We generated stable disulphide-bonded full-length RPTPalpha homodimers by expressing mutants with single cysteines at different positions in the ectodomain juxtamembrane region. Expression of wild-type RPTPalpha and Phe135Cys and Thr141Cys mutants in RPTPalpha-null mouse embryo cells increased dephosphorylation and activity of Tyr 529 in the protein tyrosine kinase c-Src; in contrast, expression of a Pro137Cys mutant did not. Mutation of Pro 210/211 to leucine in the inhibitory wedge of the Pro137Cys mutant restored its ability to activate c-Src, indicating that dimerization may inhibit full-length RPTPalpha activity in a manner stereochemically consistent with RPTPalpha crystal structures. Our results suggest that RPTPalpha activity can in principle be negatively regulated by dimerization in vivo.