The identities of receptor protein tyrosine phosphatases (PTPs) that associate with Trk protein tyrosine kinase (PTK) receptors and modulate neurotrophic signaling are unknown. The leukocyte common antigen‐related (LAR) receptor PTP is present in neurons expressing TrkB, and like TrkB is associated with caveolae and regulates survival and neurite outgrowth. We tested the hypothesis that LAR associates with TrkB and regulates neurotrophic signaling in embryonic hippocampal neurons. Coimmunoprecipitation and coimmunostaining demonstrated LAR interaction with TrkB that is increased by BDNF exposure. BDNF neurotrophic activity was reduced in LAR−/− and LAR siRNA‐treated LAR+/+ neurons and was augmented in LAR‐transfected neurons. In LAR−/− neurons, BDNF‐induced activation of TrkB, Shc, AKT, ERK, and CREB was significantly decreased; while in LAR‐transfected neurons, BDNF‐induced CREB activation was augmented. Similarly, LAR+/+ neurons treated with LAR siRNA demonstrated decreased activation of Trk and AKT. LAR is known to activate the Src PTK by dephosphorylation of its negative regulatory domain and Src transactivates Trk. In LAR−/− neurons, or neurons treated with LAR siRNA, phosphorylation of the Src regulatory domain was increased (indicating Src inactivation), consistent with a role for Src in mediating LAR's ability to up‐regulate neurotrophic signaling. Interactions between LAR, TrkB, and Src were further confirmed by the findings that Src coimmunoprecipitated with LAR, that the Src inhibitor PP2 blocked the ability of LAR to augment TrkB signaling, and that siRNA‐induced depletion of Src decreased LAR interaction with TrkB. These studies demonstrate that receptor PTPs can associate with Trk complexes and promote neurotrophic signaling and point to receptor PTP‐based strategies as a novel approach for modulating neurotrophin function. © 2006 Wiley Periodicals, Inc. J Neurobiol, 2006