Hydrogen peroxide (H2O2) has been shown to be an important modulator of intracellular phosphatase activity involved in cell signaling pathways, including signaling by members of the receptor tyrosine kinase family of receptors such as the epidermal growth factor receptor (EGER). Intracellular H2O2 can be generated by mitochondria-dependent pathways, whereas we recently showed that H2O2 could be generated extracellularly by receptor-ligand interaction. Here, we show that H2O2 produced by EGF-EGFR interaction can modulate the activity of intracellular protein tyrosine phosphatases (PTPs). Using purified proteins, we found that EGFR-ligand interaction generates H2O2 that is capable of inhibiting the activity of PTP1B in vitro. Furthermore, the addition of catalase rescued phosphatase inhibition consequent to EGF-EGFR interaction. Using cells that overexpress EGFR, we found that the addition of extracellular catalase prevented EGF-induced inhibition of EGFR-associated phosphatase activity. Our findings suggest that extracellular H2O2 generated by EGFR-ligand interaction permeates the plasma membrane and inhibits EGFR-associated tyrosine phosphatase activity, thereby modulating downstream signal transduction pathways. (c) 2005 Elsevier Inc. All rights reserved.