A rat cDNA encoding a 51-kD protein tyrosine phosphatase (PTP1) was cloned into a mammalian expression vector and transfected into normal and v-src-transformed mouse NIH 3T3 fibroblasts. In the stable subclones isolated, PTP1 expression at the mRNA level was elevated twofold to 25-fold. The highest constitutive level of phosphotyrosine-specific dephosphorylating activity observed without cytotoxic effects or significant clonal instability was approximately 10-fold over the endogenous activity. The expressed PTP1 was found to be associated with the particulate fraction of the fibroblasts. Subcellular fractionation and immunofluorescent microscopic examination of PTP1-overexpressing cells has shown the phosphatase to be localized to the reticular network of the ER. PTP1 was readily solubilized by detergents, but not by high salt. Limited proteolysis of membrane-associated PTP1 resulted in the release of lower molecular mass (48 and 37 kD) forms of the enzyme to the cytosol. Thermal phase partitioning of isolated membranes with Triton X-114 indicated that the full-length PTP1 was strongly integrated into the membrane in contrast to the proteolytically derived fragments of PTP1. Overexpression of PTP1 caused little apparent change in the rate of cell proliferation, but did induce changes in fibroblast morphology. A substantial increase in the proportion of bi- and multinucleate cells in PTP1-expressing cell populations was observed, and, in the case of the v-src-transformed cells, cell flattening and loss of refractibility occurred. Although no apparent difference in the tyrosine phosphorylation of pp60v-src was noted in v-src-transformed control and PTP1-overexpressing fibroblasts, the phosphotyrosine content of a 70-kD polypeptide was decreased in PTP1-overexpressing cells.