The control of tyrosine phosphorylation depends on the fine balance between kinase and phosphatase activities. Protein tyrosine phosphatase 1B (PTP-1B) and T cell protein tyrosine phosphatase (TC-PTP) are 2 closely related phosphatases known to control cytokine signaling. We studied the functional redundancy of PTP-1B and TC-PTP by deleting 1 or both copies of these genes by interbreeding TC-PTP and PTP-1B parental lines. Our results indicate that the double mutant (tcptp(-/-)ptp1b(-/-)) is lethal at day E9.5-10.5 of embryonic development with constitutive phosphorylation of Stat1. Mice heterozygous for TC-PTP on a PTP-1B-deficient background (tcptp(+/-)ptp1b(-/-)) developed signs of inflammation. Macrophages from these animals were highly sensitive to IFN-gamma, as demonstrated by increased Stat1 phosphorylation and nitric oxide production. In addition, splenic T cells demonstrated increased IFN-gamma secretion capacity. Mice with deletions of single copies of TC-PTP and PTP-1B (tcptp(+/-)ptp1b(+/-)) exhibited normal development, confirming that these genes are not interchangeable. Together, these data indicate a nonredundant role for PTP-1B and TC-PTP in the regulation of IFN signaling.