Oxidation of the catalytic cysteine of protein–tyrosine phosphatases (PTP), which leads to their reversible inactivation, has emerged as an important regulatory mechanism linking cellular tyrosine phosphorylation and signalling by reactive-oxygen or -nitrogen species (ROS, RNS). This review focuses on recent findings about the involved pathways, enzymes and biochemical mechanisms. Both the general cellular redox state and extracellular ligand-stimulated ROS production can cause PTP oxidation. Members of the PTP family differ in their intrinsic susceptibility to oxidation, and different types of oxidative modification of the PTP catalytic cysteine can occur. The role of PTP oxidation for physiological signalling processes as well as in different pathologies is described on the basis of well-investigated examples. Criteria to establish the causal involvement of PTP oxidation in a given process are proposed. A better understanding of mechanisms leading to selective PTP oxidation in a cellular context, and finding ways to pharmacologically modulate these pathways are important topics for future research.