Antigen receptor–triggered T-cell activation is mediated by the sequential action of the Src and Syk/Zap-70 families of protein tyrosine kinases (PTKs). Previously, we reported that another PTK termed p50^csk was a potent negative regulator of T-cell receptor (TCR) signaling because of its ability to inactivate Src-related kinases. This inhibitory effect required the catalytic activity of Csk, as well as its Src homology (SH)3 and SH2 domains. Subsequent studies uncovered that, via its SH3 domain, p50^csk was associated with PEP, a proline-enriched protein tyrosine phosphatase (PTP) of unknown function expressed in hemopoietic cells. Herein, we have attempted to identify the role of the Csk-PEP complex in T lymphocytes. The results of our experiments showed that, like Csk, PEP was a strong repressor of TCR signaling. This property was dependent on the phosphatase activity of PEP, as well as on the sequence mediating its binding to p50^csk. Through reconstitution experiments in Cos-1 cells, evidence was obtained that Csk and PEP act synergistically to inhibit protein tyrosine phosphorylation by Src-related kinases, and that this effect requires their association. Finally, experiments with a substrate-trapping mutant of PEP suggested that PEP functions by dephosphorylating and inactivating the PTKs responsible for T-cell activation. In addition to giving novel insights into the mechanisms involved in the negative regulation of T-cell activation, these findings indicate that the association of an inhibitory PTK with a PTP constitutes a more efficient means of inhibiting signal transduction by Src family kinases in vivo.