Pleiotrophin (PTN) is a platelet-derived growth factor-inducible, 18-kDa heparin-binding cytokine that signals diverse phenotypes in normal and deregulated cellular growth and differentiation. To seek the mechanisms of PTN signaling, we studied the interactions of PTN with the receptor protein tyrosine phosphatase (RPTP) β/ζ in U373-MG cells. Our results suggest that PTN is a natural ligand for RPTP β/ζ. PTN signals through “ligand-dependent receptor inactivation” of RPTP β/ζ and disrupts its normal roles in the regulation of steady-state tyrosine phosphorylation of downstream signaling molecules. We have found that PTN binds to and functionally inactivates the catalytic activity of RPTP β/ζ. We also have found that an active site-containing domain of RPTP β/ζ both binds β-catenin and functionally reduces its levels of tyrosine phosphorylation when added to lysates of pervanidate-treated cells. In contrast, an (inactivating) active-site mutant of RPTP β/ζ also binds β-catenin but fails to reduce tyrosine phosphorylation of β-catenin. Finally, in parallel to its ability to inactivate endogenous RPTP β/ζ, PTN sharply increases tyrosine phosphorylation of β-catenin in PTN-treated cells. The results suggest that in unstimulated cells, RPTP β/ζ is intrinsically active and functions as an important regulator in the reciprocal control of the steady-state tyrosine phosphorylation levels of β-catenin by tyrosine kinases and phosphatases. The results also suggest that RPTP β/ζ is a functional receptor for PTN; PTN signals through ligand-dependent receptor inactivation of RPTP β/ζ to increase levels of tyrosine phosphorylation of β-catenin to initiate downstream signaling. PTN is the first natural ligand identified for any of the RPTP family; its identification provides a unique tool to pursue the novel signaling pathway activated by PTN and the relationship of PTN signaling with other pathways regulating β-catenin.