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.