PRL-1 is a particularly interesting immediate-early gene because it is induced in mitogen-stimulated cells and regenerating liver but is constitutively expressed in insulin-treated rat H35 hepatoma cells, which otherwise show normal regulation of immediate-early genes. PRL-1 is expressed throughout the course of hepatic regeneration, and its expression is elevated in a number of tumor cell lines. Sequence analysis reveals that PRL-1 encodes a 20-kDa protein with an eight-amino-acid consensus protein tyrosine phosphatase (PTPase) active site. PRL-1 is able to dephosphorylate phosphotyrosine substrates, and mutation of the active-site cysteine residue abolishes this activity. As PRL-1 has no homology to other PTPases outside the active site, it is a new type of PTPase. PRL-1 is located primarily in the cell nucleus. Stably transfected cells which overexpress PRL-1 demonstrate altered cellular growth and morphology and a transformed phenotype. It appears that PRL-1 is important in normal cellular growth control and could contribute to the tumorigenicity of some cancer cells.