A number of phosphotyrosine-containing peptides derived from the PDGF receptor phosphorylation sites have been synthesised. The peptides were assayed as substrates of the two isoforms (IF1 and IF2) of the low Mr PTPase. The calculated k(cat), Km, and k(cat)/Km values indicate that only one peptide is best hydrolysed by IF2 (but not IF1), whose catalytic efficiency averages those previously reported for most PTPases (except the Yersinia enzyme). This peptide is the only one containing a couple of no bulky hydrophobic residues at the phosphotyrosine N-side. The determination of the same catalytic parameters in the presence of analogues of the best hydrolysed peptide in which one or both hydrophobic residues were replaced by Asp or Lys residues confirmed the importance of the hydrophobic cluster at the phosphotyrosine N-side for optimal enzymatic hydrolysis. These findings are discussed in the light of the known IF2 X-ray structure.