A novel protein tyrosine phosphatase [homologue of vaccinia virus H1 phosphatase gene clone 5 (hVH‐5)] was cloned; it shared sequence similarity with a subset of protein tyrosine phosphatases that regulate mitogen‐activated protein kinase. The catalytic region of hVH‐5 was expressed as a fusion protein and was shown to hydrolyze p‐nitrophenylphosphate and inactivate mitogen‐activated protein kinase, thus proving that hVH‐5 possessed phosphatase activity. A unique proline‐rich region distinguished hVH‐5 from other closely related protein tyrosine phosphatases. Another feature that distinguished hVH‐5 from related phosphatases was that hVH‐5 was expressed predominantly in the adult brain, heart, and skeletal muscle. In addition, in situ hybridization histochemistry of mouse embryo revealed high levels of expression and a wide distribution in the central and peripheral nervous system. Some specific areas of abundant hVH‐5 expression included the olfactory bulb, retina, layers of the cerebral cortex, and cranial and spinal ganglia. hVH‐5 was induced in PC12 cells upon nerve growth factor and insulin treatment in a manner characteristic of an immediate‐early gene, suggesting a possible role in the signal transduction cascade.