The molecular mechanisms whereby the CD45 tyrosine phosphatase (PTPase) regulates T cell receptor (TCR) signaling responses remain to be elucidated. To investigate this question, we have reconstituted CD45 (encoded by Ptprc)-deficient mice, which display severe defects in thymic development, with five different expression levels of transgenic CD45RO, or with mutant PTPase null or PTPase-low CD45R0. Whereas CD45 PTPase activity was absolutely required for the reconstitution of thymic development, only 3% of wild-type CD45 activity restored T cell numbers and normal cytotoxic T cell responses. Lowering the CD45 expression increased CD4 lineage commitment. Peripheral T cells with very low activity of CD45 phosphatase displayed reduced TCR signaling, whereas intermediate activity caused hyperactivation of CD4⁺ and CD8⁺ T cells. These results are explained by a rheostat mechanism whereby CD45 differentially regulates the negatively acting pTyr-505 and positively acting pTyr-394 p56^lck tyrosine kinase phosphorylation sites. We propose that high wild-type CD45 expression is necessary to dephosphorylate p56^lck pTyr-394, suppressing CD4 T⁺ cell lineage commitment and hyperactivity.