DEP-1/CD148 is a receptor-like protein tyrosine phosphatase with antiproliferative and tumor-suppressive functions. Interestingly, it also positively regulates Src family kinases in hematopoietic and endothelial cells, where we showed it promotes VE-cadherin-associated Src activation and endothelial cell survival upon VEGF stimulation. However, the molecular mechanism involved and its biologic functions in endothelial cells remain ill-defined. We demonstrate here that DEP-1 is phosphorylated in a Src- and Fyn-dependent manner on Y1311 and Y1320, which bind the Src SH2 domain. This allows DEP-1-catalyzed dephosphorylation of Src inhibitory Y529 and favors the VEGF-induced phosphorylation of Src substrates VE-cadherin and Cortactin. Accordingly, RNA interference (RNAi)-mediated knockdown of DEP-1 or expression of DEP-1 Y1311F/Y1320F impairs Src-dependent biologic responses mediated by VEGF including permeability, invasion, and branching capillary formation. In addition, our work further reveals that above a threshold expression level, DEP-1 can also dephosphorylate Src Y418 and attenuate downstream signaling and biologic responses, consistent with the quiescent behavior of confluent endothelial cells that express the highest levels of endogenous DEP-1. Collectively, our findings identify the VEGF-dependent phosphorylation of DEP-1 as a novel mechanism controlling Src activation, and show this is essential for the proper regulation of permeability and the promotion of the angiogenic response.