The receptor like PTPase, PTP mu, displays structural similarity in its extracellular segment to members of the immunoglobulin superfamily of cell adhesion molecules. The full length form of PTP mu (200 kD) and a construct expressing only the intracellular PTPase domain-containing segment (80 kD) were expressed in the baculovirus/Sf9 cell system, purified and characterized. Full length PTP mu was membrane associated while the truncated form was recovered in the soluble fraction. PTP mu preferentially dephosphorylated a reduced carboxamidomethylated and maleylated derivative of lysozyme (RCML) over other tyrosine phosphorylated substrates such as myelin basic protein (MBP) or the synthetic peptide EDNDYINASL. The enzymatic properties of the soluble, truncated form of the enzyme were examined in detail. The pH optimum was 7.5. It dephosphorylated RCML with a Km of 400 nM and a Vmax of 725 nmol/min/mg. This form of the enzyme was 2 fold more active than full length PTP mu. Trypsinization of the full length form inhibited activity. Vanadate and molybdate, potent tyrosine phosphatase inhibitors, abolished activity of the enzyme. Zn++ and Mn++ ions, polylysine, poly-glu/tyr, and spermine were also inhibitory.