VE-cadherin is the essential adhesion molecule in endothelial adherens junctions, and the regulation of protein tyrosine phosphorylation is thought to be important for the control of adherens junction integrity. We show here that VE-PTP (vascular endothelial protein tyrosine phosphatase), an endothelial receptor-type phosphatase, co-precipitates with VE-cadherin, but not with beta-catenin, from cell lysates of transfected COS-7 cells and of endothelial cells. Co-precipitation of VE-cadherin and VE-PTP required the most membrane-proximal extracellular domains of each protein. Expression of VE-PTP in triple-transfected COS-7 cells and in CHO cells reversed the tyrosine phosphorylation of VE-cadherin elicited by vascular endothelial growth factor receptor 2 (VEGFR-2). Expression of VE-PTP under an inducible promotor in CHO cells transfected with VE-cadherin and VEGFR-2 increased the VE-cadherin-mediated barrier integrity of a cellular monolayer. Surprisingly, a catalytically inactive mutant form of VE-PTP had the same effect on VE-cadherin phosphorylation and cell layer permeability. Thus, VE-PTP is a transmembrane binding partner of VE-cadherin that associates through an extracellular domain and reduces the tyrosine phosphorylation of VE-cadherin and cell layer permeability independently of its enzymatic activity.